New Opportunity for Global Investors: The Green Bond Pledge

Now that renewable energy technology is maturing, the low carbon economy of the future is in sight. The main challenge is how to focus global financial firepower on the kind of civic infrastructure needed for a sustainable future. That's a formidable task, but a new "Green Bond Pledge" could provide corporations, as well as government agencies, with a way to amplify their sustainability profile.

The new Green Bond Pledge

The new Green Bond Pledge was developed by a familiar group of experienced  climate action and financial organizations, including the Climate Bonds Initiative, the global climate initiative Mission 2020, the Carbon Disclosure Project, the green investor group Ceres, Citizens Climate Lobby, California Governor's Office, California Treasurer's Office, Global Optimism, Natural Resources Defense Council and The Climate Group.

The pledge was unveiled earlier this by Christiana Figueres, head of Mission 2020 and former Executive Secretary of the United Nations Framework Convention on Climate Change, at the Climate Bonds Initiative annual conference in London.

The basic goal is to accelerate the alignment of public and private capital financial strategies with the realities of climate risks, and with global goals for climate action, renewable energy and carbon emissions.

That process is already under way. The Green Bond Pledge organizers note that green bonds were first issued in 2007. Things initially got off to a slow start but the green bond market really began to take force in 2014. That year, about $37 billion in green bonds were issued, more than triple the amount in 2013.

In 2015, Triple Pundit noted that investors were paying over market rates for green bonds, and in 2016 Standard & Poor's proposed its first green bond evaluation tool.

The rate of increase has slowed somewhat but the numbers are still impressive, with more than $155 billion issued in green bonds for 2017.

The green muni market also began to gather steam in 2013, with the first one issued by Massachusetts in 2013. That same year, SolarCity (later acquired by Tesla), issued the first Asset Backed Security.

The Green Bond Pledge is designed to assemble all of this momentum into swift, high profile action:

The Green Bond Pledge seeks to have cities, public authorities and world’s largest corporates commit to increased use of green bond finance to ensure new infrastructure meets the challenges of climate change and contributes to the accelerated transformation of the economy that is necessary and achievable by 2020.

The initial goal is to recruit a substantial number of pledges by September 2018 for the Global Climate Action Summit in San Francisco, and build momentum that carries into 2019.

More than just another pledge

Sustainability pledges of one sort or another are common. The Green Bond Pledge stands out because it signals that participants recognize the value of acknowledging climate-related risks. That could translate into concrete bottom line benefits.

Here's the explainer from Figueres:

“When green investments move from business plans into budgets and balance sheets a wealth of opportunity will be unlocked across the value chain. Organizations committing to the Green Bond Pledge will benefit from these opportunities and help the necessary acceleration of capital flows - before 2020 - to deliver a sustainable future for everyone.

The Green Bond Pledge organizers emphasize that green bonds send a signal that climate risks "have been deliberately incorporated into the planning and deployment of infrastructure projects." They further argue that this signal has a bottom line value:

Long-term infrastructure and capital projects, which are typically financed with bonds, are increasingly scrutinized by investors for sustainability. Such traditional infrastructure as transportation, water, wastewater, buildings, energy and other projects need to be adaptive and resilient to climate related risks -– and not create unintended climate problems.

The organizers also take note of the role of natural infrastructure investments, including reforestation, wetlands restoration, open space preservation, and levees.

Lance Pierce, President of CDP North America, emphasizes the depth of opportunity in the green bond market:

“...In 2017 alone, CDP has seen over 500 cities from around the world reporting on 1,000+ infrastructure projects, worth over US$52 billion. These projects are potential candidates for financing via green bonds and increasingly, we're seeing a renewed appetite for the stability green bond instruments can provide.”

So, how does it work?

The Green Bond Pledge complements a Ceres initiative called ""Investor Statement of Support for Low Carbon Investment," which opens with this observation:

We, the institutional investors that are signatories to this Statement, are acutely aware of the risks climate change presents to our investments. In addition, we recognise that significant capital will be needed to finance the transition to a low carbon economy and to enable society to adapt to the physical impacts of climate change.

The Green Bond Pledge itself is quite simple. It reads in full:

We agree that all infrastructure and capital projects will need to be climate resilient and where relevant, support the reduction of greenhouse gas emissions.

We welcome the role that green bonds can play in helping to achieve the financing of that infrastructure.  

As a signatory to this pledge, we support the rapid growth of a green bonds market, consistent with global best practices, that can meet the financing needs we face and issue, whenever applicable, bonds for infrastructure as green bonds.  

We pledge to support this goal by establishing a green bonds strategy that will finance infrastructure and capital projects that meets the challenges of climate change while transforming our community into a competitive, prosperous and productive economy.

If the Green Bond organizers were looking for momentum, they appear to have found it. The launch of the pledge received a generous share of the media spotlight in the financial press. A concurrent effort to recognize leadership by the Climate Bond Initiative has also helped to hold attention.

Image (screenshot): greenbondpledge.org.