Green Bond MarketWhat if there was a way to invest money and change the world? The global green bond market may be the answer.

The potential of these bonds to facilitate global change is irrefutable. Green bonds are similar to other fixed-income instruments in their financial attractiveness but they are unique in their ability to provide a positive social and environmental impact.

The capital raised is dedicated to programs that benefit the environment and encourage more prosperity within nations, such as delivering clean water, promoting renewable energy sources and increasing efficiency.

Developed and developing countries alike face rising financial challenges from changing climate conditions and environmental hardships, but often it’s the poorest nations that suffer most. The green bond market finances many life-changing development strategies that support sustainable development, focusing on poverty reduction and inclusive growth. They are innovative financial tools to finance railways, roads, airports, buildings and energy and water infrastructures, while simultaneously achieving positive returns for the environment and society.

The green bond market has seen explosive growth and increased attention from investors in recent years. Launched by multilateral institutions less than a decade ago, green bonds have seen a 38 percent increase in the first half of 2017 compared to the year prior.

The Climate Bond Initiative, an international nonprofit focused on this niche, estimates that the total amount of green bonds issued in 2017 could reach upwards of $150 billion; this is a monumental increase from the $3 billion worth of green bonds that were issued in 2012.

This surge in interest can be explained by an increased desire by consumers to invest in an impact-driven market; this has caused a record number of public and private entities to join or issue green bonds.

The number, and nature, of the financial players involved in the green bond market have also contributed to the rapid growth. Development banks, such as the World Bank and the European Investment Bank, large corporations, including Apple and Intesa and sovereign states, like Poland and France, have all emerged in the green bond market.

Individual projects by each green bond issuer carry great reach. Just one project by the World Bank to improve sustainable water management in Brazil benefits 2.6 million people and provides 164,000 people with improved sanitation, enhancing the overall quality of life.

The interest that the green bond market has sparked is helping to change how investors think about their investments and how issuers think about the projects that they finance. So long as investors continue to ask questions about the expected social and environmental impacts of their investments, green bonds will continue to build a meaningful new capital market, providing financial support for environmental and sustainability initiatives around the world.

Jamie Enright

Photo: Flickr

The Social Impact Bond model of international aid is a relatively new way of helping foreign countries; many call it a “pay for success” model. Social Impact Bonds, or SIBs, are based on outcomes, rather than intentions. Despite the name, they do not fit the average definition of a “bond,” which would imply those receiving the investors’ money are obligated to return it no matter what happens. Rather, in a nutshell, the independent investors will only get their money back (plus interest) if the program succeeds. The social impact bond model of international aid is meant to be a preventative course of action to benefit society; only those programs that have the most chance of success will be funded.

Due to the existence of private investors, the social impact bond model of international aid does not threaten public funds or rely on the United States (or any other country’s) federal budget. SIBs could also provide a huge benefit to foreign aid if the right programs exist. Rather than merely expecting those wealthy enough to donate their cash to these causes, they are investing in them, and like any other investment, there is a chance of failure. Still, if they invest wisely, not only will they reap the rewards, but so will those who have received help from the various nonprofits.

Although there are certain flaws to SIBs, because not all programs will be able to gather funding (such as pilot programs, because they have not proved they can be successful), it certainly would help in some cases. Moreover, it will protect the U.S. budget and, if successful, will benefit a large number of people across the globe, including investors in the U.S.

Instiglio is an example of a nonprofit organization that deals primarily with social impact bonds.

– Corina Balsamo

Sources: McKinsey, US News
Photo: Tech