The Green Bond and Sustainable Development Goals

The green bond, also known as a climate bond, is a special bond that is a sustainable fixed-income debt tool that accumulates funds to finance environmental projects that have positive climate benefits. Projects like renewable energy, sustainable resource management, clean transport, clean water and water treatment, waste management and recycling, green building infrastructure, eco-efficient tech and process, climate change adaptation, and low carbon emissions are funded through green bonds.

The green bond is like any other bond with a unique green feature. The idea is to fight climate change with the help of green bonds; that is why green bond projects only finance projects that have a direct or indirect positive environmental impact and contribute to climate change. 

The Green Bond Market Overview

The green bond market is proliferating, and new thematic bonds are also coming into the bond market. These are social bonds, sustainability bonds, environmental social and governance bonds, and Sustainable Development Goal (SDG) bonds. 

The first green bond was issued with the AAA-rated issuance by the European Investment Bank (EIB) in 2007 to establish a renewable and energy-efficient program in Europe.  Until now, the green bond market has expanded a lot over the last decade and emerged as a prominent part of sustainable finance. Now investors’ demand exceeds the market supply of green bonds. As a result, the green bond is currently selling at higher prices, resulting in ‘greenium’ compared with plain vanilla bonds. 

So far, green bonds have been issued in 23 countries and 23 currencies. The USA, Canada, and western Europe have established the market for green bonds. China also joined the green bond market and invested in its low carbon energy infrastructure and continues to grow more rapidly, although there are some controversies regarding its practice of maintaining the green standard. In 2018, more than 143 billion dollars of the green bond were issued compared with 2008, when only 1 billion green bonds were issued. Also, SDG bonds in December 2020, reached their milestone of 1 trillion dollars. 

Importance of Green Bond in Achieving Sustainable Development Goals 

Famous American economist William Nordhaus stated in 2006 that an increase in temperature by 3°C will lead to a cost equal to 3% of total world GDP. Therefore, there is no other way to act on climate change and mitigation. By agreeing on Paris Agreement, the United Nations make their step on the climate mitigation and adaptation ground. After that, in the SDG, global leaders set 17 goals to meet the world’s crisis and develop a sustainable world. Also, to facilitate SDG, the green bond is the idea by which it will turn its environmental and climate challenges into a new growth opportunity. 

The importance of environmental sustainability and a low carbon economy is recognized and accepted by world leaders. The European Green Deal aims to make a world free from greenhouse gas emissions by the end of 2050. By the end of 2030, its target is to lessen greenhouse gas by 55% with the alinement of the Paris Agreement and SDG. To implement and achieve the environmental goals, around six to seven trillion funds will be required annually for the whole world for the next 15 years. At the same time, the private sector investment needs to be raised to run the low carbon infrastructure projects to achieve the sustainability goal. According to IEA, it is estimated that by the end of 2035, a total investment of 53 trillion will require for energy supply and efficiency to control world temperature by 2 degrees Celsius and the green bond can play a huge role in this sector. 

In the financial sector, the increased awareness of sustainability gives birth to the green bond market, contributing to one-third of the global corporate finance market. So, there is a considerable prospect for increasing green debt investment through the bond market. According to an OECD estimate, the potentiality of the green bond market is almost 700 billion by the end of 2030 in China, Japan, the EU, and the US markets. In the end, it is clear that to achieve environmental sustainability we need to implement SDGs. In order to do so, we need finances, and where the green bond market can play a huge role by sponsoring projects that deal with environmental sustainability. There is no way to deny the importance of the green bond in achieving SDG. 

Photo: metamorworks/Shutterstock

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