Green bonds

A Dictionary of Finance

Green bonds ensure that an investment addresses climate change, the degradation of environmental systems, or biodiversity loss.

When Aldo Romani developed the first Climate Awareness Bond ten years ago for the European Investment Bank, he wanted small investors to be able to participate, so a commitment of as little as EUR 100 could buy a piece of that issue. Now the green bond market is USD 200 billion and it has “captured investors’ imaginations,” Aldo explains on A Dictionary of Finance podcast.

This episode of the podcast lays out the need for these investments, as well as demonstrating how they allow an investor to know that her money is going to a “green” project and to be able to measure its impact. That impact reporting, says Nancy Saich, senior technical advisor in the EIB’s Environment, Climate and Social Office, has been key to the recent exponential growth of the green bond market.

Aldo, who’s a managerial advisor in the EIB’s capital markets department, notes that new issuers have come into the market as it has grown. While multilateral development banks like the EIB were the main issuers of green bonds at the start, now sovereign issuers such as France have recently brought their own green bonds to the market.

Nancy points out that green bonds have a big role to play in meeting the goal of the Paris agreement of 2015. That accord called for climate action investment of USD 100 billion each year in developing nations by 2020. By leveraging green bonds to help meet this target, Nancy says, there’s an extra impetus to find the actual climate action projects on the ground for the money to be invested in.

The green bond market’s expansion is such that, Aldo predicts, it could ultimately meet the USD 100 billion annual target all by itself.

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