Green
New Waves: The ESG Megatrend Meets Green Bonds
New Waves: The ESG Megatrend Meets Green Bonds
It’s clear that sustainable investing has been thrown into the limelight.
Increasingly, investors are seeing both the financial and social imperative for sustainable investing. In particular, the rapid growth of green bonds—a fixed income investment that is designed to raise funds for the climate or environment—is booming.
The above infographic from Raconteur navigates the growing green bond market against the backdrop of the broader ESG (environmental, social, and governance) investing shift.
Gathering Steam
By the end of 2020, $45 trillion in assets will adhere to sustainable practices, including ESG principles.
Despite the loss of confidence from COVID-19, investors flocked to sustainable-focused funds.In fact, global fund flows hit record levels for Q2 of 2020—surpassing $71 billion.
The fund flows are not without financial warrant. Between April 2015 and April 2019, average returns of socially responsible investments (SRI) outperformed their non-SRI peers. At the same time, 94% of sustainable indices realized stronger returns than their benchmarks between January and March 2020.
The accelerating demand for sustainable investments may seem like old news, but green bonds offer a new avenue.
What Are Green Bonds?
Green bonds raise money for climate and environmental projects, and are issued by governments, corporations, and financial institutions.
Multilateral development banks, which include the European Investment Bank and the World Bank, initially brought them to market in 2007, though they had a slow start. However, in 2019, new issues of green bonds topped $258 billion worldwide—jumping 51% in one year.
Across the green bond market there is a broad spectrum of different debt instruments. These include private placements, covered bonds, and green loans.
Green private placements occur when the sale of bonds are made to private investors, rather than through public offerings. Green covered bonds, on the other hand, are bonds that are backed by a group of assets that are sustainably-focused. Green loans are forms of loans that are meant to finance green projects.
Overall, green bonds can be diversified across a number of different sectors.
The Top Purposes for Green Bonds
What are the top sectors for green bond issuance?
| Category | 2015 | 2019 |
|---|---|---|
| Alternative energy | $30.4B | $143.8B |
| Green building | $10.7B | $63.5B |
| Sustainable transport | $3.7B | $58.7B |
| Energy efficiency | $9.5B | $47.6B |
| Sustainable water | $3.1B | $23.8B |
| Pollution prevention | $1.4B | $18.1B |
| Climate adaptation | $1.8B | $15.0B |
| Sustainable forestry/agriculture | $1.1B | $11.3B |
Source: MSCI
Alternative energy, accounting for over $143 billion in green bonds, outpaces all other sectors by a wide margin. Within four years, renewable energy bond issuance has more than quadrupled.
Meanwhile, green building bonds are garnering attention. These instruments finance the construction of energy efficient buildings. Within the industry, a notable green building certification system is the LEED standard, also internationally recognized. Often, real estate investment trusts (REITs) are involved in issuing green building bonds.
Interestingly, Big Tech is also becoming more active within the green bond landscape. Google’s parent company, Alphabet, has issued a record $5.8 billion in corporate sustainability bonds to fund everything from energy efficiency projects to affordable housing.
The Top 10 Countries for Green Bonds
On a country-by-country level, green bonds are most common in the U.S., China, and France.
| Rank | Country | Green Bond Issuance | 2018-2019 Change (Amount) |
|---|---|---|---|
| 1 | 🇺🇸U.S. | $50.6B | 44% |
| 2 | 🇨🇳China | $30.1B | 1% |
| 3 | 🇫🇷France | $29.5B | 113% |
| 4 | 🇩🇪Germany | $18.7B | 144% |
| 5 | 🇳🇱Netherlands | $15.1B | 105% |
| 6 | 🇸🇪Sweden | $10.3B | 66% |
| 7 | 🇯🇵Japan | $7.2B | 73% |
| 8 | 🇨🇦Canada | $7B | 63% |
| 9 | 🇮🇹Italy | $6.8B | 128% |
| 10 | 🇪🇸Spain | $6.5B | 3% |
| Top 10 Total | $181.8B | 49% |
Source: Climate Bonds Initiative
Germany issued its first multi-billion dollar government green bonds in just 2019. One catalyst behind this was the European Central Bank’s announcement that the environment would become a “mission critical” priority going forward.
This may contribute to the fact that both Germany and France saw the biggest change between 2018 and 2019.
Opening the Floodgates
As sustainable investing becomes front and center on the global agenda, questions about its impact on returns have arisen.
During times of both extreme exuberance and market crisis, companies with higher sustainability ratings have outperformed their respective benchmark. However, there is still a long way to go. Even with the record issuance of green bonds in 2019, they make up just 3% of all global bonds issued.
As demand for sustainable investments quickly grows, could it spell a watershed decade ahead for green bonds?
Agriculture
Here’s Why the Amazon is So Important for Global Food Security
The Amazon rainforest plays a critical role in supporting crop growth by stabilizing the climate and balancing water cycles.
Why is the Amazon Rainforest Important for Food Security?
The Amazon rainforest is home to 400 billion trees and covers 6.7 million square kilometers, but the ‘Earth’s lungs’, as it is commonly referred to, is so much more than that.
Aside from being a key carbon sink, it also plays a critical role in supporting crop growth by stabilizing the climate and balancing water cycles.
In this infographic, our sponsor Brazil Potash looks at how the Amazon regulates rainfall and temperature and how crop yields can be optimized. Let’s dive in.
Rainfall as a Primary Water Source
“Flying rivers” are air currents that carry enormous amounts of water vapor over thousands of kilometers. These airborne rivers are responsible for influencing regional and global weather patterns, including rainfall.
The Amazon flying river cycle begins with water evaporating from the Atlantic Ocean. Wind currents then transport these vapors across the continent, exchanging moisture with the Amazon rainforest through evapotranspiration. Finally, these aerial rivers distribute the moisture as rain.
The trees in the Amazon rainforest release around 20 billion tonnes of water into the atmosphere daily—this is more water than the Mississippi River discharges in 13 months.
Because only around 6% of cropland in Brazil is irrigated, the region relies heavily on this rainfall as a primary water source to support crop growth that feeds both local and global communities.
Temperature Regulation
The Amazon also absorbs billions of tons of carbon dioxide (CO2) a year through photosynthesis. By absorbing this CO2, it helps regulate temperatures and lessen the effects of climate change.
According to NASA research, the cumulative effects of climate change, accelerated by deforestation, may result in the loss of up to 11 million hectares of agricultural land in Brazil by the 2030s.
The continued sustainable production of Brazil’s crops is essential to food security, but deforestation can harm these efforts.
How to Grow More With Less
Brazil hosts the largest section of the Amazon rainforest at around 60%. The country is also one of the world’s largest exporters of agricultural goods.
It’s essential for global food security and for climate change that crop yields in Brazil are increased in areas already allocated for agriculture, instead of clearing new areas in the Amazon rainforest.
A recent study highlights a significant yield gap in Brazil’s primary export, soybeans.
A yield gap is the difference between actual crop yield and potential crop yield.
| Region | Yield | Yield Gap |
|---|---|---|
| Cerrado | 62% | 38% |
| Amazon | 69% | 31% |
| Atlantic Forest | 76% | 24% |
| Pampa | 92% | 8% |
The following steps proposed could optimize land usage:
- Increase crop yields: This can be done in part by optimizing and increasing fertilizer use. Local fertilizer suppliers are essential to this by providing affordable and accessible fertilizer year-round.
- Double Crop: Continuing to grow a second crop of corn on soybean fields between seasons to optimize land usage. Additional fertilizer is essential to maintain the soil’s nutrients after harvests.
- Raise cattle on smaller pastures: By streamlining the space provided for cattle, additional cropland can be added to support food for both people and livestock.
The Role of Brazil Potash
Brazil Potash aims to support the preservation of the Amazon rainforest by working with farmers to increase crop yields and improve the quality and quantity of food grown, without the need for land expansion.
By keeping farmers informed of fertilizer’s benefits and supporting a more stable supply of local fertilizer, Brazil Potash will continue supporting farming communities for generations to come.
Click here to learn more about sustainable crop growth in the Amazon and Brazil Potash.
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