Green Bonds: The Next Market-Based Mechanism to Tackle Climate Change

Carbon-related financial instruments and carbon-informed financial decisions are becoming increasingly integrated into the global economy. One part of this climate-aware economic transition is the emergence of the low-carbon or green bond.

Sustainable Prosperity defines low-carbon or green bonds as fixed-income securities which
raise capital for projects with specific environmental benefits (e.g. public transit, renewable
energy and energy efficiency).

Sustainable Prosperity partnered with HSBC and the Climate Bonds Initiative on the Bonds and Climate Change: The State of the Market in 2012 report, finding that over US$174 billion of “fully-aligned” carbon- or green-focused bonds have already been issued by corporations and financial institutions.

Fully-aligned bonds are completely dedicated to climate-related activities, and include project-based, financial, municipal and corporate bonds.

Originally developed by the World Bank in 2007/2008, green bonds are an innovative tool intended to encourage and coordinate private and public sector activity to address climate change.

Over US$3.3 billion worth of the triple-A rated bonds have been issued by the World Bank since 2009, managed by firms like major partner Skandinaviska Enskilda Banken (SEB), as well as JP Morgan, Deutsche Bank and Daiwa Securities.

Funds for the bonds are raised from fixed-income investors to support World Bank projects designed to mitigate or adapt to climate change.

Currently, Canada accounts for 3% of the global climate-themed bond market with US$6.5
billion and largely focuses on energy and transportation. The Canadian National Railway is the largest domestic issuer at US$3.4 billion.

As of mid-2012, no Canadian governments have issued green bonds, although proposals have been made. The potential for municipalities is key, particularly given their significant infrastructure needs and the potential to amplify the work of initiatives like the Green Municipal Fund.

The opportunities that green bonds provide should not be underestimated by public or
private entities seeking investments in major projects. SEB highlights the value of the green bond in promoting investment in sustainable projects and technologies while maintaining transparency and diversifying risk.

Sustainable Prosperity considers bonds to be well-suited to provide capital for long-term environmental infrastructure projects - the likes of which are required for a successful transition to the “low-carbon, climate-resilient economy.”

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