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.
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.