ESG | The Report

What is the Climate Bonds Initiative?

The Climate Bonds Initiative is a global partnership of governments, businesses, investors, and civil society organizations who are committed to mobilizing the vast financial resources required for climate action. The Climate Bonds Standard is a framework designed to promote transparency, disclosure, and integrity across the green bond market.

Climate Bonds Initiative (CBI) is an international initiative with over 230 institutional investor members in 52 countries. It is the authoritative voice on climate-aligned investment for more than $90 billion in net new ‘green’ bond issuance since 2010 to help drive long-term global growth while reducing the carbon intensity of capital.

The Initiative’s goal is to enable the world’s capital markets to provide more than US$100 billion annually in low, or zero-carbon investments. This will be done through three complementary strategies:

  1. Developing guidelines for green bonds that can serve as templates for other types of investment instruments;
  2. Increasing awareness among investors about the opportunities offered by investing in climate change solutions;
  3. Driving market demand for these new types of investments.

If you are looking for sustainable funds, the Climate Bonds Initiative lists over $2 trillion in bonds across emerging and developed markets which have been screened against environmental, social, and governance criteria. Available on their website is an Excel tool that allows you to screen all listed green bonds by type of bond (currency, fixed income etc.) omitting only private equity, infrastructure, real estate, and farmland.

What is a bond?

Basically, a bond is a type of investment that allows an organization to borrow money from investors with an agreed-upon interest rate for a set period of time. The investor loans money to the borrower and gets paid back plus interest over time. A climate bond is similar to conventional bonds, but the issuer uses the funds for climate change-related activities such as renewable energy or reducing carbon output.

Sustainability linked bonds are debt instruments that provide an additional repayable contribution.

How do climate bonds work?

Climate bonds are debt instruments with the added value of being green. They are not a new type of investment, but rather an existing form of investment that has been re-branded in order to highlight their positive environmentally social and governance impacts.

Sustainable bond investors or their financial advisors screen funds/companies against environmental, social, and governance (ESG) criteria to identify climate change risks and opportunities. This process is monitored by an independent third party such as an investment consultancy firm, ESG rating agency, or the Climate Bonds Initiative’s Standard Committee.

The investor then invests in funds/companies that are considered to be more sustainable than their peers based on the environmental, social, and governance risks and opportunities they have identified.

Why is this important?

The Climate Bonds Initiative seeks to create a $100 billion per year market for climate financing and mobilize private investment towards low-carbon and sustainable infrastructure. As of May 2016, over 200 institutional investors managing $90 billion in climate-aligned investments have signed up to the Climate Bonds Standard. And the last few years have seen exponential growth as awareness increases.

How do I know if a bond is green?

A sustainable bond is designed to finance investments that will help reduce greenhouse gas emissions or make the economy less dependent on the use of these gases. In some cases, this can include fossil fuel extraction or transportation, but it also applies to other activities that are carbon or energy-intensive, for example, mining and manufacturing.

Are climate bonds and green bonds the same?

Climate bonds and green bonds share many similarities, but they do not represent the same thing. A climate bond is a vehicle to finance investments that will help reduce greenhouse gas emissions or make the economy less dependent on the use of these gases. Green bonds are a subset of climate bonds that have been issued with the specific purpose of financing investments in clean technologies or improving energy efficiency.

Who can issue climate bonds?

Climate bonds are issued by public and private sector organizations with the agreed purpose of financing investment in climate change solutions.

Public sector organizations include national, sub-national (state, provincial), and local governments; multilateral development banks (MDBs); agencies such as EIB Group; intergovernmental organizations (IGOs), etc. Private sector actors include companies that are listed on an international stock exchange; other large companies that are not listed but have significant capital investments, therefore needing long-term financing; and asset managers investing in listed securities.

A wide variety of types of projects can be financed through climate bonds including energy efficiency, renewable energy, sustainable transport, water management, city/urban infrastructure and buildings, sustainable land use, and forestry.

What is climate Bond certification?

Climate bond certification aims to increase transparency in the market and provide a standardized framework for companies, funds, and banks looking to issue green bond. This process is overseen by an independent third party such as an investment consultancy firm, ESG rating agency, or the Climate Bond Initiative Standard Committee.

How do sustainability-linked bonds work?

Sustainability-linked bonds are debt instruments that provide an additional repayable contribution. Issuers issue a conventional bond with a coupon and maturity date, but they receive a premium that is repaid on the maturity date if certain conditions are met. If not, there won’t be any enhanced return while investors can still benefit from holding the concessionary concession-linked bond until the end of the term.

How does the green bond market work?

To break it down, green bonds start with an issuer who wants to finance a project that will help fight climate change. Specifically, the money is used for low-carbon or carbon-free technologies/projects such as renewable energy providers, power plants that burn fossil fuels but produce less CO2 than normal ones, battery manufacturers, and others. Then, the issuer either issues a green bond and gives investors a fixed return on their money, or they just issue another type of bond and keep the investor’s money until the project is finished. The only stipulation for this money is that it can’t be used to finance projects that increase carbon emissions. If all goes as planned, the issuer delivers some form of return to the investor, and emissions are reduced, which makes the bond ‘green’.

Climate bonds and green bonds share many similarities, but they do not represent the same thing.

What are the types of green bonds?

The main types of green bonds are “industrial”, “infrastructure” and “climate”.

Industrial-type green bonds finance new, existing, or expanded facilities that lower the amount of greenhouse gases (GHG) emitted into the atmosphere. This can include things like renewable energy projects, more efficient coal plants, upgrades to natural gas plants, electric vehicle infrastructure, etc.

Infrastructure-type green bonds go towards financing the construction of clean water endeavors, electricity, and transit projects that reduce GHG emissions. There are also hybrid bonds, which finance both types of projects at once.

In conclusion on the climate bonds market intel

In conclusion, climate bonds, are bonds that are issued with the goal of fighting climate change. They come in many types, including industrial green bonds that finance new facilities to lower greenhouse gas emissions, infrastructure green bonds that finance projects like renewable energy providers, power plants burning less CO2 than normal ones, and electric vehicle infrastructure. Climate-type green bonds also exist for financing things like city infrastructure, sustainable land use, forestry, and biomass. They are certified by independent third parties. Their main purpose is to fight climate change but they can also provide certain benefits while helping the issuer finance their project.

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