A Guide to Climate Bonds and Sustainable Investing

Climate bonds are a type of investment that helps fund projects focused on reducing greenhouse gas emissions and mitigating the effects of climate change. These bonds are specifically designed to support climate-resilient infrastructure and sustainable development.

Issued by governments, corporations, and other entities, climate bonds are a way for investors to support projects that have a positive impact on the environment. In 2020, the climate bond market reached a record high of $400 billion in issuances.

Investing in climate bonds can provide a range of benefits, including the potential for long-term returns and the satisfaction of knowing that investments are supporting environmentally friendly projects.

Climate bonds are a type of financial instrument designed to support projects that reduce greenhouse gas emissions or help communities adapt to the impacts of climate change.

They are issued by governments, corporations, and other organizations to raise funds for projects such as renewable energy, energy efficiency, and green infrastructure.

These bonds are typically structured as fixed-income securities, offering a return to investors in the form of interest payments and principal repayment.

Climate bonds are often used to finance projects that would not be viable through traditional funding channels due to their high upfront costs or long payback periods.

By providing a stable source of funding, climate bonds can help bring these projects to fruition, reducing emissions and supporting sustainable development.

Climate bonds are a game-changer for supporting a low-carbon economy. They can be structured exactly the same as traditional Treasury-style bonds, making them easily included into institutional investment portfolios.

Institutional investors often face challenges in supporting climate-friendly financial instruments due to additional parameters such as alternative coupon payments and liquidity constraints. Climate bonds, however, offer a solution to this problem.

The European Investment Bank (EIB) issued the first climate bond in 2007, totaling over a billion euros and used to fund renewable energy projects. This bond was held for five years before being redeemed at face value plus an amount driven by the performance of the FTSE4Good Environmental Leaders Europe 40 index.

Climate bonds have seen significant success in recent years, with the International Finance Corporation (IFC) and Export-Import Bank of Korea (Kexim) issuing a $1 billion bond and $500 million bond respectively in 2013. Both were oversubscribed in just a few hours, with 50-70% of the buyers originating in the US and Europe.

The rapid pace of subscription is a common element for climate bond issuances. For example, the new Canadian Export Development Bank received $500m in bond orders on a $300m bond in just 15 minutes.

Here's a breakdown of the investor profiles for the European Investment Bank's (EIB) first Sterling Climate Awareness Bond:

The success of climate bonds is not limited to institutional investors, as seen in the case of the New York State Energy Research and Development Authority (NYSERDA) which used a bond issuance to finance $24.3 million in loans for energy efficiency improvements.

Investing in climate bonds can be a smart move for those looking to make a positive impact on the environment. These bonds are specifically designed to support projects that have a positive environmental impact, such as renewable energy and sustainable infrastructure.

One notable example is Caixabank's green-bond programme, which helped finance the construction of the Parc Éolien En Mer De Fécamp wind farm off the coast of France. This project will generate low-carbon electricity and help diversify France's energy mix.

The wind farm will be located 13-22km off the north coast and will comprise 71 wind turbines spread across 60km2 of shallow water. This project will create 1,400 jobs during the construction phase and 100 permanent jobs in the operating phase.

BNP Paribas' green-bond programme has also supported a new electricity interconnector between the UK and Denmark, called the Viking Link. This project will enable more effective use of renewable energy and improved access to clean electricity.

The interconnector will have a capacity of 1,400MW, enough to supply 1.4m households, and will be developed by the UK's National Grid in partnership with Denmark's Energinet. It's worth noting that surplus energy can be utilised in either country due to low correlation between wind-generation output in the UK and Denmark.

The Tamil Nadu Urban Flagship Investment Programme in India will improve the water supply, sewerage, and drainage infrastructure in 10 cities across the state of Tamil Nadu. This project will improve access to piped water and sewerage networks, which will benefit 48% and 42% of households respectively.

Here are some key statistics about the climate bond projects mentioned:

The Global Reports section of climate bonds is a treasure trove of information. You can download the Annual Impact Report to get a comprehensive overview of the impact of climate bonds.

The Quarterly Portfolio Impact Statement Q1, 2024, provides a detailed look at the performance of climate bonds over the first quarter of the year. This report is a must-read for anyone interested in tracking the progress of climate bonds.

The Annual Impact Report and Quarterly Portfolio Impact Statement are just two examples of the many reports available on climate bonds. These reports provide valuable insights into the impact of climate bonds on the environment and society.

Here are some key statistics from the reports:

Climate bonds are a powerful tool for tackling climate change, and the reports available on them are a great resource for anyone looking to learn more.

Climate bonds are a powerful tool for supporting sustainability, and one great example is the Climate Bond Certified Bonds issued by MTA. MTA's Transportation Revenue Bonds, Series 2016A were the first to receive this certification, approved by the Climate Bonds Standard Board in 2016.

The certification process involved an independent verifier reviewing MTA's 2010-2014 Capital Program, which identified projects with expenditures that met the Climate Criteria. This review found that 89.7% of the $12.6 billion in spending qualified under the Climate Criteria.

MTA's pooled funding of its capital projects makes it difficult to track proceeds to specific bond transactions, but the inherent benefit of their Transit and Commuter Systems is compatible with an emissions trajectory consistent with the Climate Criteria. As a result, the Climate Bonds Initiative certified up to $11.3 billion of MTA's bonds issued for credits that fund the Transit and Commuter Systems.

This programmatic approach allows for the certification of multiple projects as a pool, making it easier for issuers like MTA to support sustainability. In fact, 93.2% of MTA's 2015-2019 Capital Program projects, totaling $28.7 billion, qualified as eligible projects for CBI certification.

The Climate Bonds Standard 3.0 and Land Transport Criteria Version 2 were used to approve the ongoing programmatic certification of future MTA bond issuances. This resulted in an aggregate CBI approval of $40.0 billion of bonds.

The Local Climate Bond (LCB) campaign is a game-changer for councils looking to fund local environmental and social impact projects.

In 2020, Abundance Investment Ltd developed the first LCBs to provide councils with long-term access to lower-cost funding from citizen investors.

Over £8.5 million of private capital has been mobilized for much-needed projects through LCBs launched by 10 pioneering councils.

Almost 2,000 investors have participated in LCBs, receiving a return on their capital while supporting climate action.

You can join the growing list of Local Authorities committed to launching a Local Climate Bond by signing the Local Climate Bond pledge.

Signing the pledge efficiently finances Net Zero projects in your local area, communicates action, demonstrates leadership, and engages your residents with your climate emergency plans.

The GFI supports the development of the LCB market through a campaign that raises awareness, informs councils, and convenes public-private decision makers.

By signing the pledge, you can work with us to find joint opportunities to showcase the impact of the Local Climate Bonds Campaign in your community.

Here are some key benefits of participating in the Local Climate Bond campaign:

Climate bonds offer a unique financial instrument for investors to support climate action while generating returns. They can be issued by governments, corporations, and other entities to raise funds for climate-related projects.

The returns on climate bonds can be attractive, with some bonds offering yields of up to 5%. This is because climate bonds often have lower credit risk due to their focus on environmentally beneficial projects.

Investors can access climate bonds through various channels, including the Climate Bond Standard, which provides a framework for issuers to create and sell climate bonds.

Financial instruments are a crucial part of any investment strategy, and they come in many forms. Stocks, bonds, and commodities are just a few examples of the many types of financial instruments available.

Stocks are ownership shares in a company, and they can be bought and sold on stock exchanges. They represent a claim on a portion of the company's assets and profits.

Bonds are debt securities issued by companies or governments to raise capital. They offer a fixed rate of return and are considered a lower-risk investment option.

Commodities, such as gold and oil, are physical goods that are used as investments. They can be traded on exchanges or bought and sold directly.

Investors can also use derivatives, such as options and futures, to manage risk or speculate on price movements. These instruments are based on the value of an underlying asset, such as a stock or commodity.

Financial instruments can be used to achieve a range of financial goals, from generating income to managing risk.

Private credit is a key player in the transition to a net-zero economy. We've seen this in action as our investment strategy has provided a catalyst for change, with portfolio companies achieving significant milestones in 2022.

Our approach to private credit emphasizes sustainability, which is essential for driving net-zero progress. This is reflected in the achievements of our portfolio companies, who have made notable strides in reducing their environmental impact.

The year 2022 was a turning point for many of our portfolio companies, who demonstrated remarkable progress in their sustainability efforts. Our investment strategy has been instrumental in supporting these companies as they transition to more environmentally friendly practices.