Jan 9, 2018

Green Bonds and A Financial Future

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Green Bonds can equal big money. That is if you know what you are doing and how to do it. Green bonds have been on the rise in the last ten years with the demand on the economy to be more green geared and especially the call for climate change. We all know it's a real situation that the Earth is getting warmer and natural resources are becoming scarce. With growing concern, more and more money is being put into companies and innovators to "go green, build green, be green..." and that's where green bonds come into place. 

"A green bonds is a tax-exempt bond issued by federally qualified organizations or by municipalities for the development of brownfield sites. Brownfield sites are areas of land that are underutilized, have abandoned buildings or are underdeveloped, often containing low levels of industrial pollution."  via https://www.investopedia.com/terms/g/green-bond.asp

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And luckily businesses are noticing that these green bonds are more than just dollar signs. Green bonds are on the rise and a good reason to be. Considering green bonds are on track to double from now and in the next 5 years from 93 billion to 206 billion. These bonds can be issued to a variety of institutions and developing programs worldwide which is increasing investors to see the money from it. As long as they adhere to the very very intense and strict guidelines, they are allotted the money. They are classified from dark green to light green. The darker the green the more money there is because they follow the strictest environmental criteria; while lighter colors are said to be more loose guidelines to follow. With new financial innovation down the road; the growing demand is coming full speed ahead. There's plenty of space to invest the 100 trillion dollars of institutional money in the world in green; currently only 1% of that is in green; but green bonds are looking to change that.

The who of who in the green world is looking to get past the normally labeled green bond market and change it in order to open the playing field larger for more companies to get involved. Some things they are working on include:

  • A Green bond that pays out a maturity depending on the performance of an equity index vs the traditional periodic coupon 
  • A Green Fixed income instrument with a synthetic coupon that mimics the cash flow of a bond which requires investors to hold the bond until maturity 
  • Making bonds more available int he global economy 

One company that focused on helping professionals generate more opportunities in the industry is the BNEF - Bloomberg New Energy Finance. They give the analysis and insight to those looking for guidance in order to provide the decisions needed to push the changes in an ever-changing economy. This team of experts are willing to put in the work it takes to get the reward we all think it returns. But here lies the problem. Growing concern has people thinking twice about them getting involved. How true are these claims of the "good" environment bond in the market and how beneficial are they? The European Union is looking to put a control on the market and make sure it is valid as people say it to be. Another company leading the way is Apple (go figure!) having the largest green bond sale in the U.S at 1.5 billion in efforts to make all their operations on renewable energy. Behind Apple is the San Francisco Bay Transportation Department aiming to bring rapid transit with low carbon transportation alternatives.

The biggest pressing concerns are there are no concrete rules of green bonds. This lack of clarity pushes concerns even more and are encouraging people to regulating the green bond stipulations. But this may also be a unwelcoming regulation that has kept so many out of the market in the first place. So every one is treading lightly...

More information on Green Bonds:
"Green bonds were created to fnd projects that have positive environmental and/or climate benefits. The majority of the green bonds issued are green "use of proceeds" or asset-linked bonds. Proceeds from these bonds are earmarked for green projects but are backed by the issuer's entire balance sheet. There have also been green "use of proceeds" revenue bonds, green project bonds and green securitized bonds." See chart below:

Green bonds can be the wave of the future, but they have to be treated properly. With the proper limited regulation and the right people investing, they could go far. With all investing, there is risk but in the end is the risk worth the success? 

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