Green Bond: Now a critical source of capital ten years on

It’s not been an entirely easy childhood. The first-ever “green bond”, a 600 million euro (Bt23.4 billion) issue in July 2007, was followed by, well, not very much in the same vein for several years. 
It took until 2013 for green bond issuance to vault the US$10-billion (Bt340 billion)-a-year mark – and even that is tiny compared with the overall bond market.
Ten years on, however, the baby of the capital markets has grown spectacularly. 
Over $90 billion was raised via green bonds last year – more than double the 2015 amount. That included the first ever sovereign green bond, a €750 million issue by Poland. 
And in January this year, France issued a €7 billion, 22-year green bond – a milestone in terms of its size and long tenor.
Climate change is an urgent threat to the planet, and major injections of capital are required to finance less carbon-intensive technologies and infrastructure. 
The green bond market is now critical to financing a lower-carbon economy. 
It enables companies to tap the growing pool of cash globally that is looking for climate-friendly investment opportunities, converting those funds into capital for environmentally sustainable projects.
Green bonds still account for less than 1 per cent of the overall global bond market. 
But the 2015 Paris Agreement on climate change has galvanised global green-tech investments and financing, while technological advances are making more and more low-carbon alternatives – from alternative energy technologies to electric vehicles and batteries – economically viable. 
Meanwhile, both China and India have thrown their considerable weight behind efforts to green their economies. 
The increasing momentum behind green bonds means issuers and investors can no longer afford to ignore them. 
True, there is lingering scepticism over the “greenness” of specific bonds, while some issuers shy away from the extra efforts – and costs – of disclosing, reporting and certifying “green” ventures. But the extras tend to be overestimated, and progress is being made on standardisation and monitoring. 
In Southeast Asia, for example, the Asean Capital Markets Forum recently agreed to apply a set of green bond standards across the region. 
The initiative aims to help Asean capital markets provide green finance to support sustainable regional growth and meet investor interest in green investments.
There can be real advantages for companies engaging with sustainable financing |now.
For a start, issuing green bonds allows companies to tap the growing demand for such instruments among pension funds, sovereign wealth funds and other investors concerned about their portfolios’ exposure to high-carbon and unsustainable issuers and activities. 
A recent HSBC survey found that two-thirds of global institutional investors want to put more capital into low-carbon and climate-related investments.
What’s more, the launch of a green bond allows issuers to demonstrate they are aware of and are preparing for the long-term challenges of global warming. 
And, by requiring them to identify, minimise and monitor their climate risk profile, it can help them embed low-carbon thinking in their corporate culture and strategy. 
Over the long term, this could well create an advantage over less well-prepared companies in terms of valuation and business prospects. 
Given what’s at stake, the green bond market’s coming-of-age can only be welcome. Happy tenth birthday!

CONTRIBUTED BY GORDON FRENCH, head of global banking and markets, Asia-Pacific, at HSBC