Environmental bonds – When the Apple becomes green

Last month Apple announced its $1.5bn green bond, to achieve the company’s conversion to 100% renewable energy, using biodegradable material, installing more efficient air system. Surely, many other will follow the initiative, reflecting the growing concern of a large number of companies about reducing their climate impact.

What exactly green bonds are? How can they help to tackle the major environmental problems? In few words, a green bond is a financial instrument to raise huge amount of money needed to start green project that have positive environmental benefit. As asset-backed corporate bonds they will be rated by investing agencies and traded in financial market. The green bond market started in 2014 with $36.6bn issued, mainly green “use of proceeds” or asset-linked bonds. Green bonds offer the same returns as other bonds, but with the added benefit that funds are only going to climate change solutions.

However, for global companies like Apple, changing operations to reduce the environmental impact requires a lot of time and money. This is one of the main reason for many companies to hesitate to invest in renewable energy or other climate projects without a significant return on investment. For example, Apple will need to raise billions of dollars to achieve its ambitious plans. Last year, it committed to spend $848m over 25 years to buy enough solar-generated electricity to offset all the electricity used in its corporate and retail operations in California.

Despite this, the green bond market is growing, reaching an all time high of $41.8bn in 2015, as stated by the Climate Bond Initiative, an NGO that manage the largest capital market of investment in projects and assets for environmental solution.

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Global green bond sales, including corporate and government bonds, since 2012. Chart: Climate Bonds Initiative

 

The growth could be faster and larger, but there is still a lot of uncertainty surrounding the environmental bonds. An example is transparency; investors that are not just interested in making money, often encounter difficulties in figuring out how effective their money is spent. A possible solution, adopted by various companies, could be requesting an annual report of the environmental project by the bond issuers. Moreover, there is a problem of perception among investors. Generally, green-bond are seen as high-risk investment, but in fact they are 89% investment-grade.

To conclude, environmental bonds activities should be monitored in the following year as they could be an effective mean to fund the huge projects that we desperately need to facilitate a transition to a carbon-free economy.

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