SUSTAINABLE DEVELOPMENT
What are green bonds and why is this market growing so fast?
This article was first published in October 2021 and updated in November 2023 from The World Economic Forum
The market for green bonds – money invested in sustainable projects – is growing exponentially.
In 2020, $270 billion was invested in green bond issuances, according to the World Economic Forum's report, Fostering Effective Energy Transition 2023.
As well, efforts are accelerating to prevent misleading marketing known as greenwashing.
Tackling the climate and food crisis won’t come cheap. The United Nations’ Intergovernmental Panel on Climate Change estimates that limiting the temperature increase to 1.5°C, the goal of the Paris Agreement, will require over $3-6 trillion of investment every year to 2050.
To raise those vast sums, governments and corporations are increasingly turning to green bonds.
What is a green bond?
Green bonds work like regular bonds with one key difference: the money raised from investors is used exclusively to finance projects that have a positive environmental impact, such as renewable energy and green buildings.
With countries around the world stepping up their efforts to reduce carbon emissions, the market for green bonds is booming.
Green Bonds are offered by municipalities, governments, or private companies, for growth projects related to environment, sustainability, food scarcity, food insecurity, and social impact.
Strong demand for green bonds is also driving growth, with major investors from asset managers to insurers and pension funds keen to scoop them up.
How big is the green bond market?
Turbo-charged by this combination of political resolve and investor appetite, the green bond market is expanding rapidly. Annual issuance could hit $1 trillion in 2023, according to S&P Global. That’s a big milestone, though it’s still just a niche in the overall global bond market, which has been estimated at about $130 trillion. So there’s plenty of room for green bonds to keep on growing.
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