Green Investments and Green Bonds: The start of the green revolution

At the start of the 21st century humanity faces severe challenges that have to deal with rising populations, rising emissions(including CO2) as well as increasing energy needs to power the world’s largest cities.

To meet these ongoing challenges the world needs coordinated on a global scale with clear objectives, metrics and goals, so as to have success.

Why are these initiatives important?

Urbanization’s growth from the 20th to the 21st century has been staggering. In the 1950s just 30% of the world population lived in urban areas, whilst now that proportion is at or above 55%. North America is one of the most urbanized regions in the world, where close to 82% live in urban areas. The proportion is different for Asia, where 50% of the population live in urban areas or Africa-42%.In Europe the level of urbanization is expected to increase to 83.7% by 2050.

At this point in time there are not only large cities with population over 1 million but there are mega cities with populations running in the tens of millions.

This rapid rise in population in concentrated areas of land with limited resources poses significant challenges from an infrastructural and logistical perspective, which the cities of tomorrow have to solve.

This increase in urban populations has caused a significant increase in pollution, due to cars, airplanes and other types of transport, which have increased CO2 emissions. By 2030 it is projected that the population of mega cities is going to reach 730 million, spread across just 43 cities. Tokyo is currently the largest of these with close to 37 million; New Delhi- 29 million, Shanghai- 26 million, Mexico and São Paolo-22 million. Cities are responsible for the consumption of close to two-thirds of energy and 70% of CO2 emissions. Just in the EU 40% of the energy and 36% of the carbon emissions are linked to residential and commercial buildings. According to the UN close to 93% of the world’s children breathe toxic air.

One of the initiatives that aim to tackle these challenges is the C40 Cities Initiative.

C40 Cities initiative:

C40 Cities currently covers 96 cities that have close 700mln citizens living in them and which represent 25% of the global economy. A lot of the C40 Cities aim to implement drastic climate action plans, with 12 cities so far meeting their objectives. They were able to put close to 66,000 electric buses on the streets, compared to just 100 in 2010. Furthermore, 24 of the cities aim to 100% renewable electricity by 2030 and 82 of them have implemented cycle hiring schemes.

A lot of these cities are trying to get extra funding for their green projects but that is not always an easy task. Luckily there is a way.

How can these green initiatives and projects be funded?

One of the most popular ways is via Green Bonds. These instruments are designed specifically to raise money for projects linked to the climate and the environment. The story of how green bonds got started is quite fascinating. In 2007 a group of pension funds wanted to invest in projects aligned with the climate but at the time there was limited information of such projects and initiatives, so they went to the World Bank for help. The effort was coordinated by many agencies such as the Center for International Climate and Environmental Research(CICERO), SEB, the World Bank and of course the pension funds. Then in November of 2008 the World Bank issued a green bond. As of 2018 close to $500bn has been raised by green bonds.

One of the most dynamic markets for such initiatives has been the Nordics.

Why is that the case?

It seems that Nordic countries place a huge emphasis on sustainability and on the environment, so much so that these measures have been embraced by the governments and businesses in that region. The Nordic Investment Bank started issuing green bonds in 2010, when the market was still in its’ infancy and as of 2018 had issued a total of EUR3bn spread across 16 issues. As of 2018 Nordics accounted for 6.7% of the global green bond market and 18.5% of the European market. The leader in the Nordic regions is Sweden, followed by Norway, Denmark and Finland. That is not surprising given that the city of Gothenburg was the world’s first city issuer for green bonds and as of 2018 41% of all European local government bonds were Swedish. Not only that but both Norway and Sweden launched separate lists for green bonds.

Denmark is right behind Sweden in terms of green bonds issued by corporations and sovereigns. A prime example is the 2017 issuance of Ørsted with a value of about EUR1.25bn. However, it currently lags behind in municipal issuance. In Norway, most of the issuance is exclusively from large energy companies. Of particular interest is the large share of mortgage-credit bond issues, especially in this case of Denmark, which accounted for 78% of all issuances.

Still, in general many industries are taking advantage of these new markets with the aim of improving their business operations and making them greener overall. A majority of the proceeds are being used to invest in renewable energy, low carbon buildings, sustainable land use, low carbon transport and others. These goals are also on focus for government-backed entities and they have also raised significant figures towards them.

Of particular interest are the renewable energy initiatives, where Nordic countries have become world leaders, especially in wind farms and the use of hydro-power.

All this points to the fact that Green Bonds are a very good initiative with wide-reaching effects.

Conclusion

Our future on planet Earth is hugely dependent on how well we can manage climate change and invest in new and greener technologies. Major cities across the globe have taken this initiative to heart and thanks to new financial instruments such as Green bonds that would help us fund these initiatives by bringing a new and better future closer to us.

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