Close to $1 Billion in Green Bonds Bought Up By Investors

Last week, the African Development Bank issued a AAA-rated  Green Bond, a 3-year $500 million bond that will finance green economy and climate resiliency projects.

Proceeds will finance a raft of projects from renewable energy generation and energy efficiency, to solid waste management and water supply access.

Morocco’s Ouarzazate 1 – the world’s largest concentrating solar plant, which is under construction – is being financed by green bonds along with other development bank sources, for example. At 500 megawatts, it dwarfs US-based Ivanpah, which came online in early October.

Example of eligible projects:

Greenfield Renewable Energy Generation (e.g. solar, wind, geothermal and ocean power);

Demand-side Brownfield and Greenfield Energy Efficiency (e.g. energy efficiency improvements in lighting and equipment; retrofit of transmission lines, substations or distribution systems to reduce technical losses);

Vehicle energy efficiency fleet retrofit or urban transport modal change;

Biosphere conservation projects (reduce emissions from deforestation and degradation of ecosystems);

Solid Waste Management (e.g. landfill gas capture and landfill gas combustion);

Industrial Processes (reduce GHG emissions from industrial process improvements and cleaner production);

Fugitive emissions and carbon capture (e.g. carbon capture and storage, reduction of gas flaring in the oil and gas industry, coal mine methane capture);

Urban Development (e.g. rehabilitation and upgrade of urban water drainage systems in areas vulnerable to frequency and/or severity of flash floods and storm surges brought by climate change);

Water Supply and Access (e.g. water saving measures such as introduction of less water intensive crops or preservation of soil moisture and fertility).

Socially responsible investors bought 84% of the bonds, the majority from the US. The oversubscribed bond sold out in a half day, paying just 0.75% in interest.

36 investors subscribed including Calvert Investments, BlackRock, TIAA-CREF, Trillium, CalSTRs, Third Swedish National Pension Fund, Pictet, Praxis Intermediate Income Fund, and State Street Global Advisors for their ‘High Quality Green Bond Fund.

Europe’s Bond

A $250 million Green Bond issued to institutional investors by the European Bank for Reconstruction and Development had the same outcome.

Targeted at socially responsible investors that support environmentally sustainable projects, 14 investors bought shares: 51% from the US, 31% from Europe and 18% from Asia. The majority are pension funds (64%).

Bond proceeds will further the Bank’s Green Project Portfolio, which finances projects in energy efficiency and clean energy, water and waste management, sustainable living, environmental services and sustainable public transport.

Since 2010, when the Bank began issuing green bonds, its portfolio has grown to 261 investments, with an average term of 10 years, and worth a total of $3.6 billion based on operating assets.  Since its Sustainable Energy Initiative launched in 2006, it has invested more than $15 billion in over 600 projects.

The Bank’s goal is to boost competitiveness of regional economies as it finances projects that mitigate the impact of climate change.

In May, the International Finance Corp (IFC), the private sector arm of the World Bank, issued the biggest green bond to date (also called "climate bonds"). The $1 billion, 3 year, AAA-rated bond is leveraging capital for climate investments such as renewable energy projects, methane capture and forest protection. 

More than $3 billion in green bonds have now been issued. Legislation introduced in the US Congress last year would have allowed everyone to buy bonds for as little as $25, with the goal of raising $50 billion that could be leveraged to $150 billion for clean energy.

The idea of using bonds to support clean energy and energy efficiency, as well as other projects to mitigate climate change has been kicking around for several years. For example, the Climate Bonds Initiative has been creating a new class of bonds to support programs for a transition to a low-carbon economy.