It’s Getting Easier Being Green: Green Bonds Gaining Steam in 1Q21
Green bonds have been touted in recent years as tools to advance technologies, finance clean energy projects, and promote economic and climate resiliency. Cumulative global debt outstanding that meets sustainability criteria hit $1 trillion in 2020, with issuers expecting to sell an additional $375 billion of green bonds in 2021, almost 40% growth year-over-year.1
Once a niche market, green and sustainability bonds are becoming mainstream. This year’s expected market growth is being driven by both issuers and investors alike: ESG considerations have become more important for investors, while companies are seizing opportunities to make investments that can help to meet climate goals and requirements.
Green Bonds 101
The European Investment Bank and The World Bank issued the first-ever green bond in 2007.2 Since then, the market has seen new structures evolve, providing investors and issuers with options for measurement, evaluation and benchmarking. While investors use the term “green bond” to describe the entire category of sustainability-related bonds, it is important to understand some of the key differentiators among commonly used structures.
The two most active categories of sustainability-related bonds are green bonds and sustainability-linked bonds (SLBs). Green bonds are generally structured similarly to standard bonds, but proceeds are allocated to eligible green projects. Green bonds therefore provide debt financing exclusively to projects that produce environmental benefits. These projects range from energy-efficiency building upgrades to renewable-energy projects such as wind or solar farms.
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1: Record $269.5bn green issuance for 2020. Climate Bonds Initiative. (2021, February 15). https://www.climatebonds.net/2021/01/record-2695bn-green-issuance-2020-late-surge-sees-pandemic-year-pip-2019-total-3bn.
2: Trends in sustainable bonds issuance and a look ahead to 2021. Environmental Finance. (2021, February 22). https://www.environmental-finance.com/content/the-green-bond-hub/trends-in-sustainable-bonds-issuance-and-a-look-ahead-to-2021.html.
July 1, 2021
Senior Managing Director, Leader of Power & Utilities Practice
Senior Managing Director
Corporate Finance & Restructuring
Energy, Power & Products (EPP)