Impact Investing: Green Bonds 101

Prior to joining EDF, I worked in a variety of finance-related roles, from building the alternative energy franchise at an investment bank to pioneering investment in rural communities in the developing world at Root Capital. As part of my work at EDF, I’m investigating what financing mechanisms can drive investment in projects with big environmental returns, as well as financial ones. This post is the start of a new series looking at the green bond market, and in the future, I’ll be delving into other areas of impact investing.

Namrita Kapur

Eighteen months ago, you might have never heard of a green bond. The market averaged less than $3 billion per year, but that is quickly changing.  $14 billion in green bonds were issued in 2013 and Bloomberg New Energy Finance projects as much as $45 billion to be issued this year. One expert even sees the market climbing to $100 billion in 2015.

Flexible financing for sustainability projects

So what are green bonds, and what is driving this market growth? Simply put, they’re a debt instrument that can be linked to an environmental benefit. One compelling aspect of green bonds is their flexibility. While some may be tied to energy efficiency and renewable energy projects, others are used for projects around climate resiliency, water infrastructure and a growing list of other high-priority sustainability areas.

As countries experience the mounting impacts of climate change, there is an increasing global demand for capital in these critical infrastructure categories. At the same time, funds that are integrating environmental, social and governance criteria in their investment decisions are looking for these types of instruments to add to their portfolios.

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In New Report, KKR Deepens Commitment to Tackling ESG Concerns

Too often, environmental performance gets labeled as the responsibility of one team within a company – whether that of a dedicated sustainability staff, external or public affairs, legal or compliance, etc. As a result, a company’s staff can often think of environmental and social governance (ESG) issues as what Douglas Adams once famously termed an SEP – Somebody Else’s Problem.

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With the release of its 2013 ESG and Citizenship Report, private equity firm Kravis Kohlberg & Roberts (KKR) shows it’s taking a different approach:  KKR has adopted a new global policy that makes identifying and addressing ESG risks in both the pre-investment and investment phases, for its staff, everyone’s problem.

Notably, KKR’s private equity investment professionals are being integrated into the ESG risk assessment process: first, in assessing risks during the diligence phase, and second, working with portfolio companies, consultants and subject matter experts to set performance goals and measure against them during the typical five to seven years a company remains part of its portfolio.

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Changing Behavior Means Changing Beliefs

At EDF, all our advocacy and education around climate change aims to change behaviors — of individuals, corporations, utilities, governments and communities. But in order to change behavior, we must first change their belief systems.

Sitar ModyThat point was made eloquently in last month's final episode of Years of Living Dangerously, the Showtime documentary series about the human impact of climate change. The episode featured a conversation with President Barack Obama, a report on the impact of accelerated glacier melt in the Andes and the far-reaching effects of human-induced ecosystem changes in Bangladesh on the economy and society.

For me the takeaways were:

  • It's vividly clear that climate change is an issue of national security in poor countries, where extreme weather creates huge groups of impoverished, resource-strapped people who easily end up in slums and ghettos, often refugees in countries far from their homes. For instance, the incursion of ocean water in Bangladesh is disrupting rice farming.
  • Abrupt climate events can destroy overnight the societies and self-sustaining lifestyles that agrarian communities have built up over many generations.
  • The United States is responsible for a tremendous amount of greenhouse gas emissions, and it's only a matter of time before we become a target of worldwide anger for the damage climate change is wrecking on our planet.
  • We must guard against cynicism, especially among the youth. Obama's recently released energy plan paints an optimistic vision of an achievable future with reduced dependence on foreign oil, affordable clean energy technologies and improved energy efficiency.
  • Putting a price on carbon is one way to change mindsets, by forcing people to recognize the true cost of a resource differently.

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Summer Heat Brings Industry Call for Climate Deal

Andrew Hutson photo

As I write this blog, it’s hot outside.  I mean really hot.  At 97 degrees today here in the North Carolina Piedmont – with a heat index of 100 degrees – it’s thirteen degrees above the average high for June.

Summers have been getting hotter here, as they have in most parts of the world, since I moved to the South from my native Michigan fifteen years ago.  And the weather has gotten weirder. Way weirder.  Too much rain at times, not enough at others.  Hot when it should be cold, cold when it should be hot.  Bigger storms. You get the picture… you’re experiencing it too.

Yet, somehow, I’m hopeful.

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Raising the Bar for Private Equity ESG Reporting

As the old management adage goes, “what gets measured gets managed.” Private equity firm Apax Partners took an important step toward embodying that concept this spring by releasing a sustainability report rich with key metrics from its portfolio companies' progress in environmental, social and governance (ESG) management.

Apax Partners logo

As last year’s Pitchbook survey showed, ESG management is increasingly a mainstream issue for private equity firms. The detailed data that Apax portfolio companies are gathering — and reporting as a group — form the foundation for companies to manage ESG issues, as well as benchmark and then measure any advances.

This is all part of an important, ongoing shift in the private equity industry: from questioning if firms can create value through ESG management, to how can firms capture the value.

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Want to Market the Realities of Climate Change? Get a Handsome Vampire

…and the Terminator, and Indiana Jones, and a Titanically popular director and more. If you don’t get where I’m going with this thread, you may have been under a rock for the past week, because when Hollywood talks about climate change, all kinds of new audiences listen.

Years of Living Dangerously is an incredibly ambitious documentary on climate change airing on Showtime. It is also a fascinating case study in how to market a scary, complicated concept to mass audiences and stimulate new conversations across both virtual and physical communities.

al goreAl Gore – Won the Nobel Peace Prize

 

ian somerhalderIan Somerhalder - has 4.85 million followers on Twitter

 

al tweet

Al Gore, with 2.71m followers, is no slouch in social media – I’m just illustrating that perhaps Mr. Somerhalder has a bit more active fan base.

There are many different ways to tell a story and start a conversation. At EDF we focus on science, economics, partnerships and bipartisan outreach to find solutions to climate change. Our stories stem from the results we drive, and yes, we love talking about science and statistics.

The teams behind both the making and the marketing of the YEARS documentary are focusing on the human element. The series uses celebrities as the lens to educate the audience through human stories and simple language. They find the real value in communicating climate change at an emotional level.

Years of Living Dangerously - Ian Somerhaler

There’s also a human component in experiencing the documentary. There's no need to watch YEARS alone from your couch. The YEARS team is promoting human interaction: from social sharing through millions of celebrity followers, to spurring community action , to providing tools to host your own “viewing party” and find groups to watch with in your neighborhood.

Ian tweetYears tweet

In order to get climate change into the mainstream conversation, we need to lean on people who have high visibility in the mainstream. The bold names extending their environmental passion to this documentary include: Jessica Alba, Matt Damon, Michael C. Hall, Don Cheadle, Olivia Munn, America Ferrera, Arnold Schwarzenegger, Lesley Stahl, Thomas Friedman, Harrison Ford, Ian Somerhalder and Chris Hayes.

Because EDF is chock full of scientists and economists, I’d be shunned in the break room if I didn’t provide you with some statistics:

twitter stats

Take over 16 million followers x thousands of tweets, favorites and shares, and YEARS just gathered a massive mainstream audience around an important issue.

At EDF, we are especially proud to be featured in the Years of Living Dangerously documentary.  Our flagship fellowship program, EDF Climate Corps, is featured in the May 26th episode, as Jessica Alba follows three of our Climate Corps fellows through their summer internships working with Caesars, Office Depot and Texas Southern University to help those organizations find energy efficiencies and become more sustainable.

In the coming weeks, we’ll be introducing you to our Climate Corps fellows and the important work they do every year in hundreds of organizations. And yes, we’ll also be inserting ourselves into the mainstream conversation, so please feel free to tweet and share (#YEARSProject, @EDFBiz). Especially if you’re Jessica Alba …

Jessica Alba retweets EDF

 

Additional reading:

Craig K. Comstock of HuffPo says YEARS could be the 2014 version of The Day Afterhttp://huff.to/1eqyw0S

How YEARS came to EDF’s Eric Pooley with a great idea – http://bit.ly/1g3ujPm

Walmart Puts Consumer Product Suppliers on Notice: The Chemical Phase-out Starts Now

By: Michelle Mauthe Harvey and Sarah Vogel

Today dozens of consumer product makers will get a letter from Walmart detailing new requirements on phasing out a list of toxic chemicals found in goods sold by the world’s largest retailer. The comprehensive initiative is by far the largest and most ambitious of its kind. It reflects a growing trend in which consumer and wholesale purchasing power are combining to change the chemical makeup of the products we see on store shelves and bring into our homes.

Walmart_Stores

The policy and its implementation guide can be found here.

Walmart worked closely with vendors and non-profit advisors including Environmental Defense Fund. Together they spent several years developing the policy, and figuring out how to implement the unprecedented measures across a sprawling global supply chain with hundreds of suppliers. The solution had to be robust, credible and transparent. It also had to set an ambitious goal for suppliers without creating impossible hurdles. Read more

EDF named “Trusted Leader” in Inaugural GreenBiz NGO Report

Environmental Defense Fund (EDF) is honored to be ranked by GreenBiz as one of the three trusted leaders among environmental nonprofits, along with World Wildlife Fund (WWF) and The Nature Conservancy (TNC) – truly excellent company.

Murray_Tom

In its inaugural NGO Report, GreenBiz asked hundreds of sustainability executives from large corporations to rate and rank 30 leading NGOs in terms of influence, credibility and effectiveness. GreenBiz charted the responses and grouped the NGOs in four categories:

  • Trusted Partners – Corporate-friendly, highly credible, long-term partners with easy-to-find public success stories
  • Useful Resources – Highly credible organizations known for creating helpful frameworks and services for corporate partners
  • Brand Challenged – Credible, but not influential, organizations
  • The Uninvited – Less broadly known groups, or those viewed more as critics than partners Read more

EDF Climate Corps – Creating a New Generation of Leaders

Tyrone Davis

Tyrone Davis

In his State of the Union Address last night, President Obama offered a new twist on the customary pronouncement on the nation’s health, saying “it is you, our citizens, who make the state of our union strong.”

Seated in the gallery with the First Lady were some shining examples of those citizens.  One of them was former EDF Climate Corps fellow, Tyrone Davis.

Tyrone is from Winston-Salem, NC, and has been legally blind since the age of nine.  Despite his vision loss, he ran cross-country and track in high school, and received a political science degree and Masters of Public Administration from North Carolina State University.  He developed an interest in environmental issues during his time as an undergraduate, which led him to apply for an EDF Climate Corps fellowship in 2010. Read more

Is there a ray of environmental optimism?

First there were the producers of “Years of Living Dangerously”, who wanted to end their ground-breaking documentary on an optimistic note. Next, President Obama and the First Lady invited former EDF Climate Corps fellow Tyrone Davis to the State of the Union address.

It seems like everyone is coming to EDF Climate Corps to find that one, important ray of hope when talking about climate change. Could we be onto something here?

The answer is yes. EDF Climate Corps does represent hope for a more environmentally secure future. Why? Because we are tapping into the country’s brightest and most passionate graduate students to create a ripple effect of environmental change in the corporate sector, in cities, and in universities. This is the generation that will change the planet with a new approach to leadership that balances profitability with sustainability. President Obama said it nice and loud, “The debate is settled. Climate change is a fact.” The new generation of leaders understand that we need to find ways to provide goods, food and services for an exploding population without decimating our planet. They’ve got the passion. EDF gives them the tools. Now they’re getting the exposure they deserve.

Case in point:

Gina McCarthy and Tyrone Davis of EDF Climate Corps

We are all incredibly proud of Tyrone’s work and the well-earned attention he has brought to the next generation of leaders.

Look for “Years of Living Dangerously” to debut on April 13th at 10pm on Showtime.