Green bonds meet P2P

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26 May 2017

We know that bonds can come in all manner of shapes and sizes. However, in recent years they have also started to come in colours. When it comes to investments which provide stable, predictable returns, green bonds provide these while helping the environment.

For those that haven’t heard about green bonds, they’re essentially a standard bond with a bonus feature being that proceeds are used to fund projects that have positive environmental and/or climate benefits. Typically, these bonds are earmarked for green projects but are backed by the issuer’s entire balance sheet thereby sharing the issuer’s credit rating.

According to Bank of America Merrill Lynch, USD$90 billion of green bonds were issued in 2016. In Australia, we have seen over $6 billion of green bonds issued in local currency, with the likes of NAB ($300 million), CBA ($650 million), Investa Office Fund ($250 million), the Victorian Government ($300 million), Westpac ($500 million), and ANZ Bank ($600 million) all going green.

According to Climate Bonds Initiative, it expects new issuance of green bonds to increase to a record USD$150 billion in 2017, with USD$42 billion raised to date.

While there has been a flurry of activity on the traditional corporate and government bond market, what we are now possibly starting to witness is offering further down the credit ladder. In particular, this week saw RateSetter, a peer-to-peer lending platform in the Australian market, announce the launch of its Green Loan investment market with a cornerstone investment of $20 million by the Federal Government’s Clean Energy Finance Corporation.

Loans facilitated through the new RateSetter lending market have terms of typically between 3 years and 7 years. The loans will fund individual and business loans for a wide range of green purposes including solar panels, battery systems, energy efficient lighting, emissions reducing industrial applications and electric/low-emission cars and trucks. RateSetter expects interest rates for investors of around 7.0% at launch.

Daniel Foggo, CEO of RateSetter, said “We’re excited to be providing investors with exposure to a hard-to-access asset class that delivers attractive, stable returns, whilst supporting the environment. We’re also delighted to have support from CEFC, an important government organisation, as we look to deliver attractive financing options to our borrowers.”

RateSetter’s approved uses of green lending funds is determined by RateSetter rather than an independent green certification, as is the case with some green bonds. However, RateSetter do reference the Clean Energy Finance Corporation definitions when assessing the use of funds for a particular loan.

For those investors interested in peer-to-peer investing you can find the latest investment opportunities compiled by YieldReport here.