REVOLUTIONARY IMPACT?
The impact of green bonds is unlikely to be limited just to the fight against climate change. In an environment of increased investor scrutiny and thirst for transparency, green bonds have the potential to force an evolution in how conventional bond markets work.
Green bonds have a very significant transparency advantage over traditional bonds. The assets raised by certified green bonds are ring-fenced to finance specific environmental projects, which gives investors superior transparency not just in how their assets will be put to use, but also what the environmental impact of their investment will be.
This ring-fencing of assets is something that could spread to wider bond markets. “It offers investors much more transparency and should give them more comfort,” NN IP’s Bos says.
Lombard Odier’s Gacon says because of green bonds’ ring-fencing characteristics, the financial community is learning it can take a closer look at what exactly issuers are using the funds raised by bonds to finance.
“This allows them to make a more informed decision,” he says. “I would bet that in 20 years this will have become normal practice for the whole bond market.”
Amundi’s Samama is less convinced given the additional costs associated with acquiring a certification regarding how funds will be spent.
“Companies are willing to pay a little extra cost to send a signal to the market that they are investing in green initiatives because investors favour companies that do so,” he explains.
