Top 5 Reasons to Look at Green Bonds

Projects already financed by green bonds from IFC include not just Aura Solar in Mexico and Zorlu Wind in Pakistan, but also Modern Karton, in Turkey—a cardboard manufacturer that uses waste paper, straw pulp, and water. With groundwater seriously depleted in the region of Turkey where the company’s wells are located, the government has prohibited additional deep well drilling and limited industrial access. Faced with restrictions that threatened its existence, the company got a green bond-financed loan from IFC that Hartwick said supports a new waste water recovery system that has allowed the company to expand production by 50% without increasing water use.

4. Limiting the increase in global temperature: Last year the International Energy Agency (IEA) said that, to restrict global temperatures from increasing more than 2 degrees Celsius, an investment of $36 trillion was necessary in climate technology and industry—a $1 trillion investment every year until 2050. This year, however, the IEA upped the amount necessary to transition the globe to clean energy to $44 trillion—and added that the investment would save $115 trillion in avoided fuel costs.

Those projects will encompass not just renewable energy and biofuel, but also such sectors as efficiency upgrades for buildings and vehicles, and also rethinking how businesses and systems work, from smart grids to supply chains.

5. Interest in impact investing is growing: Figures from J.P. Morgan and the Global Impact Investing Network indicate that sustainable investments have grown 20% since last year among the 125 development finance institutions, foundations and fund managers they reviewed—totaling $46 billion. While there’s obviously still a long way to go to meet the IEA’s goal of $44 trillion, that also means there’s a lot of room for investment in the sector.

It’s not only the high-net-worth and institutional investors who are interested in impact investing; individuals with smaller bank balances want to do their part too. Incapital said that the first issue of green bonds for individual investors attracted a little under $6 million the week of September 8—a strong showing, since because of rate movement during the week, the bonds were less favorably priced toward the end of the week than at the beginning. Incapital prices its bonds on Mondays and maintains that price for the duration of the week.

Louise Herrle, managing director, capital markets at Incapital, said that sometimes for its broker-dealer distribution group to fully participate “sometimes it does take a little bit of time and multiple offerings.” However, for this first offering of green bonds, “we know a couple of dealers took large chunks of the bonds and onsold them to their financial advisor base…. There’s increasing interest within the BD community for what we call values-based investments … from both clients and financial advisors.”

To allow even more advisors and individual investors to pursue their commitment, not just to green energy investments but to a broader array of values-based investments, Incapital will launch later in the month its Legacy platform, which, according to the firm, is “designed to help advisors align their clients’ financial and social impact goals.”

“It has always been important to us at Incapital to give back to our community and it’s even more rewarding to do so in a way that connects investors to values-based opportunities,” said Tom Ricketts, chairman of Incapital, in a statement. “Incapital’s Legacy platform expands our prior involvement with programs to meet important environmental and social impact needs.”

Herrle said that the new platform will allow issuers of values-based investments “to provide their products to individual investors, to connect them in a way that that’s [otherwise] not readily available to them.” The involvement of more issuers will, in turn, “grow the sector.”