Green bonds have been around for a while – now the Social and Sustainable Financing Options are Gaining Ground
Vienna, March 8, 2019 - So far, the green bond market has been chiefly promoted by the efforts of state and public actors. While they still dominate the market, there have nevertheless been changes over the past few years – and in 2018, more and more private financial institutions and companies, especially from the industry sector, joined the market for green or sustainable bonds. In the meantime, the financial sector is already second in the market for green, social and sustainable bonds.
The reasons for this development are varied: Ever since the UN adopted the Sustainable Development Goals (SDGs), political actors have increasingly rallied behind the green finance movement. At the same time, there has been a marked increase in investor demand for green, social and sustainable financial products – or impact investing products, as they are frequently called. Also, guidelines and classifications for this new financial market have been developed and are continually improved.
And this trend will continue – this at least is the conclusion drawn from the first F.A.Z. conference on sustainability and capital investment held in Frankfurt, Germany, on April 18, 2018. Hessian Minister for Economics Tarek Al-Wazir showed himself convinced that “a real turnaround in the direction of sustainable financial economy is under way.” He called a reorientation of the current financial system “essential” – “green finance has to become standard.” At the same time, he underscored that a rebuilding of the current system cannot be done solely with public money.
Rebuilding of Financial Market Crucial in Dealing with Climate Change
This is in particular true for the huge challenge we are all facing in turning the energy industry around – according to Al-Wazir, “the central task of our generation.” This vast undertaking cannot succeed without the support of the financial industry. In order to halt climate change, it was necessary to mobilize private capital on a large scale, emphasized the Minister and noted, the financial industry was the central “facilitator” of the much-needed rebuilding of the system. At the same time, the green investments had to produce attractive returns to attract necessary capital, he explained.
Difficulties of Defining and Measuring Sustainable Investments
While there are generally accepted standards such as the SDGs, SRI, ESG and such like that can contribute to a broader understanding of what can be classified as a sustainable or “green” investment, it is often difficult to measure the actual “impact” of an investment in figures and statistics. Therefore, participants at the F.A.Z. think-tank workshop suggested supplementing the measurement tools with concrete evidence of successful projects. “Storytelling” was a good method to demonstrate to potential investors the effect that sustainable investments can have.
Another way to get a clearer picture of the direct impact of an investment is to avoid the traditional shares or fund portfolios and instead opt for direct participation in companies that provide sustainable products or services, for instance wind parks or photovoltaic systems.
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