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New Waves: The ESG Megatrend Meets Green Bonds

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Rise of Responsible ESG Investing

outperformance of esg investing

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?

Category20152019
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.

RankCountryGreen Bond Issuance2018-2019 Change (Amount)
1🇺🇸U.S.$50.6B44%
2🇨🇳China$30.1B1%
3🇫🇷France$29.5B113%
4🇩🇪Germany$18.7B144%
5🇳🇱Netherlands$15.1B105%
6🇸🇪Sweden$10.3B66%
7🇯🇵Japan$7.2B73%
8🇨🇦Canada$7B63%
9🇮🇹Italy$6.8B128%
10🇪🇸Spain$6.5B3%
Top 10 Total$181.8B49%

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?

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Green

Mapped: The Greenest Countries in the World

The world’s growing focus on sustainability is a clear sign of the times. This map ranks the 40 greenest countries in the world.

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Mapped: The Greenest Countries in the World

From widening wealth disparity to the environmental ramifications of economic development—the growing focus on global sustainability is a clear sign of the times.

Research reveals that when a sustainable ethos is applied to policy and business, it typically bodes well for economies and people alike. By providing benchmarks for those decisions, indexes like Yale’s Environmental Performance Index (EPI) can be critical to measuring national sustainability efforts.

The above map interprets the EPI ranking of 180 economies across 32 environmental health indicators by narrowing in on the top 40 greenest countries.

Who’s the Greenest of them All?

Despite the decades-long trend of globalization, national environmental policies have proved to be widely divergent. The EPI report confirms that those policies—and their positive results—are highly correlated with national wealth.

This is evidenced in the global EPI distributions, seen below:

OVERALL RANKCOUNTRYSCOREREGIONAL RANK
1Denmark82.51
2Luxembourg82.32
3Switzerland81.53
4United Kingdom81.34
5France805
6Austria79.66
7Finland78.97
8Sweden78.78
9Norway77.79
10Germany77.210
11Netherlands75.311
12Japan75.11
13Australia74.912
14Spain74.313
15Belgium73.314
16Ireland72.815
17Iceland72.316
18Slovenia721
19New Zealand71.317
20Canada7118
21Czech Republic712
22Italy7118
23Malta70.720
24United States of America69.321
25Greece69.13
26Slovakia68.34
27Portugal6722
28South Korea66.52
29Israel65.81
30Estonia65.35
31Cyprus64.86
32Romania64.77
33Hungary63.78
34Croatia63.19
35Lithuania62.910
36Latvia61.611
37Poland60.912
38Seychelles58.21
39Singapore58.13
40Taiwan57.24
41Bulgaria5713
42United Arab Emirates55.62
43North Macedonia55.414
44Chile55.31
45Serbia55.215
46Brunei Darussalam54.85
47Kuwait53.63
48Jordan53.44
49Belarus531
50Colombia52.92
51Mexico52.63
52Costa Rica52.54
53Armenia52.32
54Argentina52.25
55Brazil51.26
56Bahrain515
57Ecuador517
58Russia50.53
59Venezuela50.38
60Ukraine49.54
61Uruguay49.19
62Albania4916
63Antigua and Barbuda48.510
64Cuba48.411
65St. Vincent and Grenadines48.411
66Jamaica48.213
67Iran486
68Malaysia47.96
69Trinidad and Tobago47.514
70Panama47.315
71Tunisia46.77
72Azerbaijan46.55
73Paraguay46.416
74Dominican Republic46.317
75Montenegro46.317
76Gabon45.82
77Barbados45.618
78Bosnia and Herzegovina45.418
79Lebanon45.48
80Thailand45.47
81Suriname45.219
82Mauritius45.13
83Tonga45.18
84Algeria44.89
85Kazakhstan44.76
86Dominica44.620
87Moldova44.47
88Bolivia44.321
89Uzbekistan44.38
90Peru4422
91Saudi Arabia4410
92Turkmenistan43.99
93Bahamas43.523
94Egypt43.311
95El Salvador43.124
96Grenada43.124
97Saint Lucia43.124
98South Africa43.14
99Turkey42.619
100Morocco42.312
101Belize41.927
102Georgia41.310
103Botswana40.45
104Namibia40.26
105Kyrgyzstan39.811
106Iraq39.513
107Bhutan39.31
108Nicaragua39.228
109Sri Lanka392
110Oman38.514
111Philippines38.49
112Burkina Faso38.37
113Malawi38.37
114Tajikistan38.212
115Equatorial Guinea38.19
116Honduras37.829
117Indonesia37.810
118Kiribati37.711
119São Tomé and Príncipe37.610
120China37.312
121Samoa37.312
122Qatar37.115
123Zimbabwe3711
124Central African Republic36.912
125Dem. Rep. Congo36.413
126Guyana35.930
127Maldives35.63
128Uganda35.614
129Timor-Leste35.314
130Laos34.815
131Sudan34.816
132Kenya34.715
133Zambia34.715
134Ethiopia34.417
135Fiji34.416
136Mozambique33.918
137Eswatini33.819
138Rwanda33.819
139Cambodia33.617
140Cameroon33.621
141Viet Nam33.418
142Pakistan33.14
143Micronesia3319
144Cabo Verde32.822
145Nepal32.75
146Papua New Guinea32.420
147Mongolia32.221
148Comoros32.123
149Guatemala31.831
150Tanzania31.124
151Nigeria3125
152Marshall Islands30.822
153Niger30.826
154Republic of Congo30.826
155Senegal30.728
156Eritrea30.429
157Benin3030
158Angola29.731
159Togo29.532
160Mali29.433
161Guinea-Bissau29.134
162Bangladesh296
163Vanuatu28.923
164Djibouti28.135
165Lesotho2836
166Gambia27.937
167Mauritania27.738
168Ghana27.639
169India27.67
170Burundi2740
171Haiti2732
172Chad26.741
173Solomon Islands26.724
174Madagascar26.542
175Guinea26.443
176Côte d'Ivoire25.844
177Sierra Leone25.745
178Afghanistan25.58
179Myanmar25.125
180Liberia22.646

Regional grouping in the report include: Global West, Asia-Pacific, Eastern Europe, Former Soviet States, Greater Middle East, Latin America & Caribbean, Southern Asia, and Sub-Saharan Africa

Scandinavian countries, which tend to have a high GDP per capita, show strong and consistent results across EPI parameters. Denmark for instance—which ranks first overall—leads the world in slowing its growth in CO2 emissions. Meanwhile, neighbor Sweden leads in landfill and recycling treatment, while wastewater treatment is led by a handful of countries within and beyond Scandinavia including Denmark, Finland, the Netherlands, Singapore, and Sweden.

In North America, Canada claims top spot in the biodiversity and habitat category, while the U.S. ranks sixth in agricultural diversity globally. In Asia, Singapore leads the world in fishery health and sustainability.

Ultimately, it appears the world’s greenest countries tend to focus on all areas of sustainability, while laggard countries show more uneven performance across categories.

What Does “Green” Mean?

Each high-level performance indicator with the EPI, like “environmental health”, is broken into subsections. Nations are scored on each subsector on a scale up to 100. As a result, multiple countries can rank first in any given category.

By evaluating national sustainability on a scale that is unrelated to other nations, we get a clearer idea of comparative national progress, beyond a basic ranking.

For instance, 30 countries tie for first in marine protection, all with scores of 100. This shows that many economies are prioritizing this area of sustainability.

The EPI categories and subsectors are shown in the diagram below:

Greenest Countries in the World Supplemental EPI Index

Each section is weighted differently, and is reflected as a percentage within the index. For example, Ecosystem Vitality accounts for 60% of the EPI, Climate Change makes up 24% of a country’s score, and CO2 emission reduction is weighted at 13.2%.

The Cost of Being Green

Infrastructure costs are one reason why wealthier nations tend to fare better across sustainability measures. Everything from air pollution reduction and water treatment, to hazardous waste control and mitigation of public health crises are especially expensive—but have a huge potential impact on citizens.

This trend can be seen the scatterplot, which demonstrates the distribution of economies evaluated by the EPI:

Greenest Countries in the World Main Image Supplemental Comparing GDP to EPI Score

For a more detailed look, the table below highlights the GDP per capita of each of the top 40 greenest countries, based on data from the World Bank and Statista:

COUNTRYEPI SCOREGDP Per CapitaRANK
Denmark82.560,1701
Luxembourg82.3114,7052
Switzerland81.581,9943
United Kingdom81.342,3304
France8040,4945
Austria79.650,1386
Finland78.948,7837
Sweden78.751,6158
Norway77.775,4209
Germany77.246,44510
Netherlands75.352,33111
Japan75.140,24712
Australia74.955,06013
Spain74.329,60014
Belgium73.346,42115
Ireland72.878,66116
Iceland72.366,94517
Slovenia7225,94618
New Zealand71.342,08419
Canada7146,19520
Czech Republic7123,49521
Italy7133,22822
Malta70.729,82123
United States of America69.365,29824
Greece69.119,58325
Slovakia68.319,26626
Portugal6723,25227
South Korea66.531,84628
Israel65.843,59229
Estonia65.323,72330
Cyprus64.827,85831
Romania64.712,92032
Hungary63.716,73233
Croatia63.114,93634
Lithuania62.919,60235
Latvia61.617,82936
Poland60.915,69337
Seychelles58.217,44838
Singapore58.165,23339
Taiwan57.225,87340

Despite the strong correlation between GDP per capita and EPI score, developing countries do not have to abandon sustainability efforts. China for instance leads the world in the adoption of electric vehicle technology.

Post-Pandemic Outlook

Although some rankings can seem prosaic, indexes like the EPI provide a helpful benchmark for economies to compare efforts. It also allows governments to iterate and build upon environmental strategies and investments by highlighting what is and isn’t working.

CO2 emissions, for instance, are a major driver of climate change. Although the global economic stall has led to a temporary dip of CO2 emissions in early 2020 (a slower growth rate than the 11% expected rise), global emissions still continue.

However, the EPI shows that investments have impact. High-level sustainability efforts—political commitment, media coverage, regulations—can deliver results, even at the grassroots level.

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Energy

How Much Solar Energy is Consumed Per Capita? (1965-2019)

This visualization highlights the growth in solar energy consumption per capita over 54 years. Which countries are leading the way?

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How Much Solar Energy is Consumed Per Capita?

The long history of solar energy use dates as far back as 4,000 B.C.—when ancient civilizations would use solar architecture to design dwellings that would use more of the sun’s warmth in the winter, while reducing excess heat in the summer.

But despite its long history, we’ve only recently started to rely on solar energy as a renewable power source. This Our World in Data visualization pulls data from BP’s Statistical Review of World Energy to highlight how solar energy consumption per capita has grown in countries around the world over 54 years.

Solar Success: The Top Consumers Per Capita

Solar energy consumption is measured in kilowatt hours (kWh)—and as of the latest estimates, Australia leads the world in terms of highest solar energy consumption per capita at 1,764 kWh in 2019. A combination of factors help achieve this:

  • Optimal weather conditions
  • High gross domestic product (GDP) per capita
  • Tariffs incentivizing the shift to solar

In fact, government subsidies such as financial assistance with installation and feed-in tariffs help bring down the costs of residential solar systems to a mere AUD$1 (US$0.70) per watt.

RankCountrySolar consumption per capita
(kWh, 2019)
Solar’s share of total
(per capita consumption)
#1🇦🇺 Australia1,7642.50%
#2🇯🇵 Japan1,4693.59%
#3🇩🇪 Germany1,4093.22%
#4🇦🇪 UAE1,0560.77%
#5🇮🇹 Italy9953.40%
#6🇬🇷 Greece9363.08%
#7🇧🇪 Belgium8471.30%
#8🇨🇱 Chile8233.39%
#9🇺🇸 U.S.8151.02%
#10🇪🇸 Spain7972.34%

Source: Our World in Data, BP Statistical Review of World Energy 2020
Note that some conversions have been made for primary energy consumption values from Gigajoules (GJ) to kWh.

Coming in second place, Japan has the highest share of solar (3.59%) compared to its total primary energy consumption per capita. After the Fukushima nuclear disaster in 2011, the nation made plans to double its renewable energy use by 2030.

Japan has achieved its present high rates of solar energy use through creative means, from repurposing abandoned golf courses to building floating “solar islands”.

Solar Laggards: The Bottom Consumers Per Capita

On the flip side, several countries that lag behind on solar use are heavily reliant on fossil fuels. These include several members of OPEC—Iraq, Iran, and Venezuela—and former member state Indonesia.

This reliance may also explain why, despite being located in regions that receive the most annual “sunshine hours” in the world, this significant solar potential is yet unrealized.

RankCountrySolar consumption
per capita (kWh, 2019)
Primary energy consumption
per capita (kWh, 2019)
#1🇮🇸 Iceland0No data available
#2🇱🇻 Latvia0No data available
#3🇮🇩 Indonesia<19,140
#4🇺🇿 Uzbekistan<115,029
#5🇭🇰 Hong Kong<146,365
#6🇻🇪 Venezuela121,696
#7🇴🇲 Oman284,535
#8🇹🇲 Turkmenistan367,672
#9🇮🇶 Iraq415,723
#10🇮🇷 Iran541,364

Source: Our World in Data, BP Statistical Review of World Energy 2020
Note that some conversions have been made for primary energy consumption values from Gigajoules (GJ) to kWh.

Interestingly, Iceland is on this list for a different reason. Although the country still relies on renewable energy, it gets this from different sources than solar—a significant share comes from hydropower as well as geothermal power.

The Future of Solar

One thing the visualization above makes clear is that solar’s impact on the global energy mix has only just begun. As the costs associated with producing solar power continue to fall, we’re on a steady track to transform solar energy into a more significant means of generating power.

All in all, with the world’s projected energy mix from total renewables set to increase over 300% by 2040, solar energy is on a rising trend upwards.

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