In line with our investment strategy for Positive Impact, we have long been excited about the rise of green bonds. New issuances of green bonds hit a new record in 2019 – over $250bn up 51% from the year before.
Green bonds are fixed income securities issued by governments or corporates, where all the capital raised is earmarked to be spent on positive environmental projects – such as renewable energy, energy efficient buildings and waste recycling.
At the same time, green bonds present the same credit risk as non-green bonds from the same issuer. It has proven that retail investors can play part in financing climate change mitigation, without taking up any more risk.
Rise of social impact bonds
Until now, bond issuances with social purposes have been lagging behind the green bond surge. However, the issuance of ‘pandemic bonds’ has skyrocketed in response to the crisis. Social bonds grew to $40bn in the first half of the year according to Bloomberg, representing a 364% increase in sales from the same period last year.
We believe this may have kick-started a similar growth trend as seen in green bonds.
Two weeks ago, Alphabet (parent company of Google) announced $5.75bn worth of sustainability-social bonds. The proceeds will go towards projects that include investments in energy-efficient technologies, carbon-free clean energy solutions, green buildings, emissions-free transportation, innovation in circular economy, building affordable housing, racial equity through supporting Black-led businesses, and financing small firms and organisations on the frontlines of the coronavirus pandemic response.
Among other virus-related social bond issuers so far have included the Nordic Investment Bank, Inter-American Development Bank, African Development Bank, and 25 Chinese companies. It’s fantastic to see that investor interest is growing, and the EQ Positive Impact Portfolios have already added exposure to a number of these.
What’s ahead for green bonds?
April marked the first time that social and sustainability bonds eclipsed the issuance of green bonds in a single calendar month.
Despite this, we can expect to see continued growth over time. Regulation, such as the EU Green Bond Standard, will increase the quality and repeatability of green bonds, with growing mainstream investor interest further supporting their growth.
Investing with EQ
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