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?
Energy
Charted: The Safest and Deadliest Energy Sources
What are the safest energy sources? This graphic shows both GHG emissions and accidental deaths caused by different energy sources.
Creator Program
Charted: The Safest and Deadliest Energy Sources
Recent conversations about climate change, emissions, and health have put a spotlight on the world’s energy sources.
As of 2021, nearly 90% of global CO₂ emissions came from fossil fuels. But energy production doesn’t just lead to carbon emissions, it can also cause accidents and air pollution that has a significant toll on human life.
This graphic by Ruben Mathisen uses data from Our World in Data to help visualize exactly how safe or deadly these energy sources are.
Fossil Fuels are the Highest Emitters
All energy sources today produce greenhouse gases either directly or indirectly. However, the top three GHG-emitting energy sources are all fossil fuels.
| Energy | GHG Emissions (CO₂e/gigawatt-hour) |
|---|---|
| Coal | 820 tonnes |
| Oil | 720 tonnes |
| Natural Gas | 490 tonnes |
| Biomass | 78-230 tonnes |
| Hydropower | 34 tonnes |
| Solar | 5 tonnes |
| Wind | 4 tonnes |
| Nuclear | 3 tonnes |
Coal produces 820 tonnes of CO₂ equivalent (CO₂e) per gigawatt-hour. Not far behind is oil, which produces 720 tonnes CO₂e per gigawatt-hour. Meanwhile, natural gas produces 490 tonnes of CO₂e per gigawatt-hour.
These three sources contribute to over 60% of the world’s energy production.
Deadly Effects
Generating energy at a massive scale can have other side effects, like air pollution or accidents that take human lives.
| Energy Sources | Death rate (deaths/terawatt-hour) |
|---|---|
| Coal | 24.6 |
| Oil | 18.4 |
| Natural Gas | 2.8 |
| Biomass | 4.6 |
| Hydropower | 1.3 |
| Wind | 0.04 |
| Nuclear energy | 0.03 |
| Solar | 0.02 |
According to Our World in Data, air pollution and accidents from mining and burning coal fuels account for around 25 deaths per terawatt-hour of electricity—roughly the amount consumed by about 150,000 EU citizens in one year. The same measurement sees oil responsible for 18 annual deaths, and natural gas causing three annual deaths.
Meanwhile, hydropower, which is the most widely used renewable energy source, causes one annual death per 150,000 people. The safest energy sources by far are wind, solar, and nuclear energy at fewer than 0.1 annual deaths per terawatt-hour.
Nuclear energy, because of the sheer volume of electricity generated and low amount of associated deaths, is one of the world’s safest energy sources, despite common perceptions.
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