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Green bonds: record sales push sustainable investment forward

Green bonds updates

Proponents of green bonds once banged their heads against a wall in the debt market. The rise of ESG investment means the bonds are suddenly in heavy demand. Poland, France, Germany and the Netherlands have all sold sovereign green bonds. On Tuesday, Spain issued its own debut offering, borrowing €5bn over 20 years. The UK will belatedly launch a green gilt later this month. The torrent of climate-conscious capital seems unstoppable.

Green bonds earmark funds for environmental projects that can mitigate climate change. In Europe, a green yield curve is developing, thanks to multiple maturities issued by benchmark sovereign Germany. European investors increasingly pay a “greenium” for the right to own the bonds.

Throwing money at the vast problem of climate change has become fashionable — if still insufficient. The cost of halting global warming could cost at least $48tn, Morgan Stanley estimates. That is more than half global GDP today. This year’s worldwide green bond issuance — in all categories — has topped $200bn.

Still, green bond sales this year already exceed the total for 2020, says Bank of America. The issuance is still dwarfed by the broader bond market. Green bonds account for an increasing share. New sustainable bonds in June were just under a fifth of the total.

Critics of green bonds focus on the slipperiness of corporate positions on climate change. Whatever restrictions green capital place on borrowers, nothing prevents them from using other funding sources for projects that do not meet green bond criteria. Simply rewarding some bonds or stocks with pricier valuations does not necessarily bring about wholesale positive action on climate change.

But this negative thinking ignores the auditing efforts that are under way. Sustainable investment funds will be shamed if they stray. See the public opprobrium of DWS, after accusations of greenwashing that the German fund manager denies. The EU’s Sustainable Finance Disclosure Regulation will turn the screws tighter on funds. The flush of green sovereign bonds represents a step in the right direction, not an end point. It should be applauded.

The Lex team is interested in hearing more from readers. Please tell us what you think of green bonds in the comments section below.

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