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Green Bonds Market Doubles
By Holly Testa, Director, Shareowner Engagement

Holly Testa is the Director of Shareowner Engagement for First Affirmative Financial Network.

The nascent green bond market doubled to almost $10 billion in November! Then, in mid-December, SolarCity debuted a new financial innovation that will help pay for rooftop solar and sold another $54.4 million of bonds that cover 68,000 contracts for rooftop systems.

The “green bond” concept emerged in 2007 in response to demand for financing vehicles for environmental and climate-related opportunities. It is clearly expanding beyond the traditional responsible investment channels and is now poised for exponential growth.

What constitutes a green bond? Although there is not yet an agreed upon definition, Calvert Investments specifies that a bond is green if it derives at least half of its revenue from clean tech or an environmentally beneficial technology, product or service, or if a project achieves goals such as developing smart growth and transit, energy efficiency, pollution prevention, and green real estate.

Some of the largest banks and corporations introduced significant green bond issues in recent weeks, and major institutional investors are buying them up:

  • Bank of America issued a three-year, fixed-rate green bond; Calvert Investments, PAX World, BlackRock, and the California State Teachers’ Retirement System were major investors.
  • The first green bond issued in euros, worth €1.4 billion, was issued by French energy firm EDF. The issue was twice oversubscribed, with SRI managers buying 60% and mainstream investors 40% of the bond issue.
  • The International Finance Corporation (IFC) recently issued its second $1 billion global green bond in the past year. It was also oversubscribed, and investors included Deutsche Bank, Ford, and Microsoft.
  • Mutual funds specializing in green bonds are entering the market. State Street Global Advisors’ launched a High Quality Green Bond strategy in 2011, and Calvert followed suit recently with the Calvert Green Bond fund.

Compared with the $2.3 trillion in investment grade bonds issued year-to-date as of October, 2013, the green bond market is still tiny; but the recent expansion of interest to corporate issuers and major institutional players from the mainstream market is crucial. It is, perhaps, an indication that the green bond is here to stay, and that clean tech and environmentally beneficial businesses have a new source of targeted financing.

First Affirmative understands that the ways we save, spend, and invest can dramatically influence both the fabric and consciousness of society. We believe that in addition to the benefits of ownership, investors bear responsibility for the impact our money has in the world. Are you making conscious decisions about the impact of your consumer purchase and investment decisions?

Mention of specific companies or securities should not be considered a recommendation to buy or sell that security. Past performance is no guarantee of future results.

Posted: January 6, 2014