Green Bonds

Last week ANZ issued its inaugural green bond to be used for projects with a positive environmental or climate benefits and to finance a portfolio that contributes to low carbon industries and technologies. These projects include loans to wind, power and solar projects and also Green Star-rated commercial real estate. Projects in the geothermal power and fuel-efficient transportation sectors may also be considered in due course, according to the bank. The bond has been certified by the Climate Bonds Initiative and independently verified against CBI standards by Ernst & Young.

Green bonds are generally considered to be bonds created to encourage sustainability that have been pioneered by a handful of development banks. In some jurisdictions such bonds attract tax-exempt status, which can make purchasing a green bond a more attractive investment when compared to a comparable taxable bond. The proceeds of green bonds are used for climate or environmental projects. This is a subset of a larger market referred to as the ‘climate-themed bonds universe’ that includes bonds whose proceeds are directed to climate projects but are not labelled green.

Green bonds are generally debt tied to particular projects, in ANZ’s case projects that can help the battle against climate change by targeting funding at lower carbon and energy efficient projects.

In the future, the world’s economies will be increasingly ‘carbon-constrained’ and this will at some point be achieved with financial nudging such as carbon taxes. In such an environment green bonds will come into their own as they tie capital contractually to projects with an environmental mandate. The funding, in turn, contributes to lowering the carbon intensity of portfolios. There are also international indices for green bonds like the MSCI/Barclays Green Bond Index.