International Finance Corporation (IFC), part of the World Bank Group, has expanded on its first offering of green bonds earlier this year, launching a program through Incapital that opens green bonds to individual investors.
The IFC Impact Notes Green Bond offerings are Triple-A rated bond alternatives to securities such as those issued by government-sponsored enterprises (GSEs). They offer proponents of impact investing the added advantage of seeing their money used exclusively for the financing of renewable energy and energy efficiency projects.
The projects are global in nature, with most being built in emerging market countries. While many see that as a risk, both Incapital and IFC see it as an opportunity—and, according to Incapital, the addition to the green bond program is just the beginning.
Here are five reasons why Incapital and IFC say there’s such huge potential for growth.
1. Population growth: According to Evelyn Hartwick, head of socially responsible bond programs at IFC, by 2030, “there will be about 1.3 billion more people in the world … with most growth taking place in emerging markets.”
Low- and medium-income economies will account for 90% of that population growth. And that translates to money. Hartwick said, “These economies are contributing 70% of global GDP growth, and 90% of GDP growth in that area of the world [emerging markets].” So the green bond projects in those regions are only logical, since “it makes sense to [build] where the growth will be [located].”
2. Energy needs: Hartwick said that population growth will equate to “1.3 billion more people looking for energy.” Considering the already volatile disputes over energy from fossil fuel sources, that leads quite logically to the need for renewable sources, the fastest growing energy sector. Much of that growth, said Hartwick, is also within emerging market countries. “Renewables are growing by 7.6% per annum,” she said, adding that biofuels are also on the rise.
3. Climate change: With concerns over climate change driving a need for more efficiency, cleaner sources of energy, and depletion of natural resources including water, green investment isn’t only about more; it’s about better.
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.