What do Auckland Council's electric trains, Contact Energy's geothermal energy plants, and Argosy Property's 5-Star Green Star buildings have in common? All have been financed by green bonds in New Zealand over the past 12 months.
So what is a green bond? Green bonds are regular vanilla bonds that are issued to fund initiatives with positive environmental or climate outcomes, including initiatives aimed at energy efficiency; pollution prevention; the protection of nature's ecosystems; sustainable food production; clean transportation; sustainable water management; and development of green technology. They are typically issued by corporates, banks, or governmental bodies. Like vanilla bonds, they pay interest at regular intervals, are backed by the assets of the issuer, and are (usually) listed on a recognised debt market.
The value of global green bond issuances has increased exponentially in recent years, reaching US$170 billion of issuances in 2018, with a projected US$250b of issuances to take place in 2019.
With over US$45 trillion of assets globally now managed in accordance with socially responsible investment principles, green bonds play an increasingly vital part in asset managers' fixed income strategies.
Green bond programmes are generally established under one of two frameworks — the Green Bond Principles (backed by the International Capital Markets Association) or the Climate Bonds Initiative (an international non-profit organisation). Both frameworks are voluntary, but are intended to provide prospective investors with a level of confidence that the proceeds of a green bond issue will be used in a "green" way.