A growing number of companies are taking strides to address their carbon footprint. Could issuing green bonds be the next step, asks Peter Ellsworth
In July, 13 US companies pledged to reduce greenhouse gas (GHG) emissions by improving energy efficiency and meeting more of their energy needs from renewable energy sources.
In addition, more than 350 companies sent letters to 29 state governors in support of the EPA's Clean Power Plan.
It's clear that the clean energy transition is gaining more traction in the private sector.
These new corporate commitments equal approximately $140 billion in potential clean energy investments, which begs the question: if implementing these commitments will require debt financing, why not issue a green bond?
Currently, investor appetite exceeds the supply of green bonds, and investors would welcome new issuers, particularly from US corporations.
Beyond the beneficial climate impacts, here are just a few reasons why issuing green bonds would be a good bet for companies:
- Attract a broader more diversified investor base seeking 'green' investments;
- Demonstrate industry leadership and enhance reputation by integrating debt management into firm-wide commitments to reduce GHG emissions; and
- Cultivate a positive internal culture of long-term sustainability and environmental stewardship.
Fortunately, clear guidelines exist to help issuers get started. Two useful resources are the Green Bond Principles, a voluntary framework established by leading underwriters, investors and issuers; and the Statement of Investor Expectations for the Green Bond Market, which was developed by a group of investors convened by Ceres to provide investor perspective on project eligibility, disclosure, reporting and overall transparency.
The International Energy Agency (IEA) estimates that at least an additional trillion dollars in new clean energy investments is needed annually over the next 35 years to keep atmospheric warming below the 2°C threshold likely to trigger far more severe adverse climate-driven impacts.
This clean energy transformation, which many companies are publicly supporting, will need to be financed, and the debt markets will play a significant role.
Green bonds, which many investors and their clients are asking for as part of sustainable investment strategies that promote a low-carbon economy, signal a corporate commitment to such a cleaner energy future and help grow green debt markets while also taking advantage of benefits such as a more diversified investor base.
For the many companies making public commitments to energy efficiency and renewable energy sourcing, issuing a green bond to finance those climate-friendly projects would be yet another demonstration of active climate solutions leadership.
Peter Ellsworth is senior manager of investor programmes at Ceres, a non-profit organisation advocating for sustainability leadership.
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