DIU Blog

The emergence of Green Bonds as
CSR

Global warming has had a detrimental impact on the entire planet since it has caused weather unpredictability. It is the long-term warming of the Earth’s climate system that has been seen since which was before times (between 1850 and 1900). Industrial emissions and the burning of fossil fuels contribute to global warming by increasing high-temperature greenhouse gas levels in the atmosphere. Although the two terms are sometimes used interchangeably, the latter refers to both man-made and natural warming, as well as the repercussions for our earth. It’s generally calculated as the average rise in the World’s global surface temperature. Many nations have begun to take efforts, one of which is green financing, to preserve Mother Earth and themselves from the ill effects of global warming. Moreover, Global warming is silently destroying mother nature. Green bonds are now being issued by several governments. Bonds are issued to raise funds for climate and environmental projects. This article is meant to explain why green finance is so important for the world’s ecology. It will explain how the phrase “green finance” came to be coined, as well as the current condition of various nations.

Together all pieces of information given on global warming demonstrate that owing to change in climate, the net damage costs are likely to be important and will grow exponentially,” according to the Intergovernmental Panel on Climate Change. Scientists are very certain that global temperatures will rise in the next 10 years, with greenhouse gases released by human activities being the primary cause. The Intergovernmental Panel on Climate Change (IPCC) has around 1300 scientists from the United States and other countries. According to those scientists, the temperature will rise by 2.5 to 10 degrees Fahrenheit in the next hundred years. In light of this, the relevance of green finance or green bonds is growing across the world. A green bond is a debt security issued by an entity to fund or refinance initiatives that improve the environment and/or the climate. As a result, it’s often referred to as a climate bond. To qualify, a bond must fulfil specific requirements for the use of profits, as well as having a procedure for project appraisal and selection, effective administration of any revenues, and full reporting. The United States, China, and France are the most prevalent countries to issue green bonds. Even though it just started buying corporate bonds in 2016, the European Central Bank already owns about 20% of all euro-denominated green debt, demonstrating that the bank sees green debt as a vehicle to advance its green agenda. The first green bonds for institutional investors were issued by the World Bank in 2008. In 2012, just $2.6 billion of green bonds were issued. In 2016, green bonds, on the other hand, began to grow. Chinese borrowers contributed $32.9 billion of the total, or over a third of all issuances, and were responsible for much of the activity. There is, however, a worldwide interest, with the European Union and the United States leading the way. According to a recent Moody analysis, green bond issuance has achieved a new high. Among the most current Moody study, global green bond issuance hit a new high in 2017, with $161 billion in investment. In 2018, growth slowed somewhat to $167 billion but regained the following year because of a more environmentally concerned consumer. In 2019, green bond issuances reached a record high of $266.5 billion and over $270 billion the year after. The World Bank is a prominent issuer of green bonds, having issued $14.4 billion in green bonds since 2008. Green bond proceeds were utilized to support up to 111 projects across the world, with a particular focus on renewable energy and efficiency (33 percent), sustainable transportation (27 percent), agriculture, and land use (15 percent).

Green bond growth has been voracious in the capital markets, and it is progressively garnering investor interest. We’ve observed a shift in views toward sustainable investment for a variety of reasons. Investors are becoming increasingly aware of the dangers that climate change presents to their portfolios, and they’re starting to report on them through platforms like the Task Force on Climate-related Financial Disclosures (TCFD). Stakeholders are also pressuring the investing community to adopt stronger environmental, social, and governance (ESG) regulations. Green bonds address some of the changes in the new landscape. They provide investors a place to engage in ethical behaviour while also influencing bond issuers’ commercial objectives. They provide a mechanism to hedge against the danger presented by climate change while obtaining equal, if not greater, returns on investment. As a result of the emergence of green bonds and green finance, high-carbon-emitting projects are inadvertently disincentivized. According to Climate Bonds, the green bond market grew at a 49 percent annual pace in the five years leading up to 20121, and annual issuance might reach $1 trillion by 2023. The rise of green bonds has influenced the creation of other branded bonds, such as social bonds. When looking at the present state of green bonds throughout the world, it’s clear that they have a wide range of applications. The severity of the harmful effects of global warming on climate has begun to be recognized across the world. As a result, nations are taking steps to issue green bonds. The green bond market has exploded in popularity during the last few years. Green bonds are expected to outperform conventional investment options in the future years. Green bonds have not gained traction in the same way that the stock market or the crypto currency market has.
Many nations are still lagging in terms of green bond issuance and investment. There is a need to raise the profile of green bonds. Companies should be encouraged to build more green projects and issue a large number of green bonds, according to the World Bank. Green bonds should be as easy to trade like stocks on stock markets, making them more accessible to ordinary investors. Lastly, it can be said that, Green bond is the ultimate sustainable investment source in far future.

About the Writer:

FATEMA NUSRAT CHOWDHURY, Assistant Professor, Department of Business Administration

Fatema Nusrat Chowdhury from Daffodil International University, Bangladesh is performing as an academician (Assistant Professor) in the discipline of Finance; Side by side she is perusing her Ph.D. in venture capital investment for entrepreneurial financing. She truly values the relationships built from community involvement and thereby develops those connections through the cross-cultural platform like International Conference, Faculty Exchange program, Summer School program. She has a number of papers published in the vigorous national and international journals including the Scopus index by presenting remarkable awarded papers in international academic conferences held at home and abroad. She experienced the title of International Faculty by Chandigarh University, India during her visit in response to their invitation for delivering lectures on her concentrated area of Finance, Banking and Entrepreneurship.