Investors worth US$2trn back green bonds at NY Climate Week

Pension funds, insurers and asset managers show an appetite for low risk, climate-friendly investments

Trains and windfarms are the kind of low carbon projects green bonds can finance (Pic: Flickr/Windwärts Energie/Mark Mühlhaus)

Trains and windfarms are the kind of low carbon projects green bonds can finance
(Pic: Flickr/Windwärts Energie/Mark Mühlhaus)

By Megan Darby

The fledgling green bond market got some wind beneath its wings this week as investors worth US$2 trillion gave it their backing.

Pension funds, insurers and asset management firms signed a statement confirming their appetite for investment in climate change solutions.

Zurich, Barclays and Aviva were among those promising to sink more money into green bonds, which offer a fixed return on capital put into climate-friendly projects.

And there were warm words for the growing market from World Bank president Jim Yong Kim, speaking as part of New York’s Climate Week.

“The message is clear. Investor interest in a clean future is rising.” – World Bank Pres. Kim #Climate2014 #cwnyc

— World Bank Climate (@wbclimatechange) September 23, 2014

As Sean Kidney, CEO of the Climate Bonds Initiative, put it in an exuberant blog post, Kim “almost breaks out in song about green bonds”.

The bosses of Credit Agricole and Bank of America “waxed lyrical” on the topic, said Kidney.

He summarised the message from Climate Week sessions as: “The capital is ready, bring on the investments to be made! And green bonds.”

The global bond market is worth US$100 trillion. For pension funds and insurers, which have a duty to safeguard people’s money over decades, bonds offer the predictable return on investment they need.

Such institutional investors have tended to see low carbon sectors as too risky, particularly where there is new technology involved.

Issuers of green bonds aim to bridge that gap, offering financial products that are both good for the climate and low risk.

The Climate Bonds Initiative recently estimated there was US$500 billion worth of climate-friendly bonds outstanding, albeit only US$36 billion worth was labelled “green”.

It is coordinating efforts to standardise green bonds and make sure they achieve genuine carbon savings.

In New York this week, major investors showed they are keen to invest in green bonds and called on governments and green finance experts to help develop the market.

Two insurance industry associations, ICMIF and IIS, said their members would double climate investments to US$84 billion by the end of the 2015. By 2020, they expect to multiply their green impact tenfold.

Companies backed this up. Zurich Insurance Group, which manages US$214 billion of assets, announced plans to put US$2 billion into green bonds.

In the biggest investment by a bank, Barclays is due to increase its green bond holdings from £430 million (US$700m) to £1 billion ($1.6bn) by November 2015.

Tushar Morzaria, group finance director at Barclays, said: “Every so often, market innovation and social imperatives come together to create something exciting that has the potential to make a real difference. The green bond sector is a fast-growing and powerful example of this synthesis.”

Development banks, which have led on green bonds, confirmed their continued backing. The European Investment Bank, which at US$4.4 billion has been the biggest issuer of green bonds to date, promised to help grow the market.

The African Development Bank is committed to investing US$10 billion in low carbon and climate resilience projects under its 2011-15 Climate Change Action Plan.

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