The name’s Bond. Green Bond.

The spectre of climate change has scared the living daylights out of many of us this past decade. The collective effort of the big businesses of the world is not enough to halt the damage: the days of industry being granted a licence to kill the planet are over. Big business has been shaken but not stirred to action. Until now.

What links climate change solutions to these thinly-concealed Bond references (and how many did you spot with your golden eye)? An innovative financial instrument, launched with a view to kill the perception that profit is incompatible with environmental responsibility. The name’s bond. Green bond.

The unprecedented bushfires ravaging Australia have certainly highlighted the catastrophic effect that climate change is having on the planet. They really do demonstrate that “climate change is real”, a statement that has been circulating on social media in recent weeks.

Whilst it is appreciated that bushfires are not untypical in Australia, it is important to understand that climate change, and more notably the resulting hotter, drier conditions, have contributed to the ferocity of this year’s blazes. This crisis has led many to question what they can do to help and what preventative measures, if any, can be taken to avoid an ecological disaster of such devasting scale from happening again.

One possible solution to combating climate change, which has grown in popularity over recent years, and which is anticipated to soar in 2020, is the issuing of what are known as “green bonds”. Green bonds are similar to traditional bonds, save for one important difference: the funds raised through green bonds must be used for projects that benefit the environment. These bonds have the cumulative effect of financing large ecologically focussed projects and industries which will be sustainable in two senses of the word. These projects need to be financially sustainable, so as to illustrate to investors that hefty returns can be made from these types of projects and industries and, secondly, be sustainable in the ecological sense of the word, with the environment being the key driver of the projects.

In a recent article published by the Financial Times, it is stated that more than $189bn in green bonds were issued in 2019, with corporations being the largest green bond issuers of the year, accounting for 46% of the market.

One of the most high-profile green bond issues of 2019 was that of Apple Inc., which became the first ever U.S. tech company to issue green bonds. Apple issued a staggering $2.2bn in green bonds to pay for a wide range of environmental initiatives including the research and development of greener materials, including those that are bio-based. The issue is the largest ever to have been undertaken by a U.S. company.

Strong investor demand, a greater focus from governments on addressing climate change and an increasing number of repeat green bond issuers means that many market participants are now operating with a mandate or preference for sustainable assets. This will no doubt prove to be a catalyst in changing the way in which business is conducted in the future. Indeed, many commentators predict that 2020 will see a seismic shift from businesses demonstrating their environmental conscious predominantly for ethical and social publicity purposes to a meaningful and lucrative financial incentive in big business playing a key role in financing climate change solutions.

It is the beginning of the 20’s, Greta Thunberg, climate change and sustainability are frequenting the news on a regular basis and some forecasts are suggesting that up to $1 trillion of green bonds could be issued in 2020, the future really does look green.

If you would like advice on sustainability, renewables or project finance, please contact our Corporate Team.

Insight article byChristian Farrow

Christian Farrow

Partner

+44 (0)7791 370 679
[email protected]

 

Insight article byKate Francis-Hughes

Kate Francis-Hughes

Trainee Solicitor

+44 (0)7967 784 785
[email protected]