World Bank: green bonds changing investor expectations

Green bonds are changing investor expectations and making sustainable investing easier, according to the World Bank. The organisation also predicts that sustainable investment will eventually become the standard way for managing a fixed-term portfolio.

Green bonds act the same way as traditional bonds, paying out defined payments over a set time period, but focus on areas of sustainability, from renewable energy to protecting the environment.

In an article, the World Bank notes that in 2013 around $11 billion (£7.4bn) in green bonds were issued but this increased to $35 billion (£23.4bn) last year, beating expectations. Looking at emerging trends for 2015, the bank explains that investor expectations are changing, with green bonds helping to change how money is being invested and encouraging investors to think of other factors as well as financial return.

The organisation continues that investors are drawn to liquid, fixed income investment that green bonds offer and the positive impact they can have. Many institutional investors, such as pension funds, now have responsible investment policies and strategies and green bonds can help meet the criteria.

Laura Tlaiye, a sustainability adviser at the World Bank, said, ”Environmental degradation, poverty and the effects of climate change all threaten well-being and stability of countries, communities, resources and businesses. Investors increasingly recognise the threats these forces create for long-term financial value and are increasingly considering it in their investment choices.”

The green bonds market also offers smaller investors an opportunity to let their values and ethics be reflected in their investment decisions. Last year, the State of Massachusetts, US, received more than 1,000 orders from investors for a green bond it issue, most of them individual investors that wanted to support investment in the environment, clearly demonstrating the demand for such products.

“The fact that these investors looking for these types of investments and asking for detailed metrics on environmental performances changes incentives. We reach investors we would not otherwise reach, diversify and expand the invest base and fund sources,” commented Heike Reichelt, head of investor relations and new product at the World Bank.

Other trends the World Bank expects in the green bond market include expanding both issuer and investor bases and increasing transparency and indices.

Reichelt added, “We believe sustainable investment will become the standard way for managing a fixed-income portfolio, transforming how companies and the projects they support are managed.

“The next generation of portfolio managers will wonder how short-term gains could have overshadowed sustainable growth for so long.”

Photo: 401(k)2013 via Flickr 

Further reading:

Green bond issuance triples in 2014

Campaigners call for clarity in Green Bond Principles

Green bond investment forecasted to double in 2014

US firm launches $100m green bonds for low-carbon investment

Investors commit to expanding the climate bond market