The green bonds market is expected to hit the US$100 billion mark by the end of this year, and if the current trajectory continues, we can expect more than $1 trillion in green bonds by the end of the decade.
Consumer sentiment, corporate social responsibility and climate change awareness are all driving interest in green bonds – but ultimately, investors just want assurance that their money is financing assets that will deliver long-term sustainable returns.
And when green bonds are achieving similar yields to conventional bonds and investors don’t have to put their hand in their pockets for their principles, why wouldn’t they go green?
In Australia, Stockland got the market’s attention last year with its €300 million green bond to fund Green Star projects. ANZ’s $600 million green bond to back investment in renewable energy projects and green buildings earlier this year also sent a signal to the sector.
However, the percentage of green bond issuance compared with the global market is still tiny. In 2014, $3.35 trillion in bonds were snapped up, but those with a green tinge amounted to $36.6 billion, or just over one per cent of total market volume.
And as the market has grown, it’s fair to ask whether projects financed by green bonds live up to their good intentions.
When Green Star buildings produce 62 per cent fewer greenhouse gas emissions than average Australian buildings, establishing the link between green bonds and buildings makes smart sense.
And this is why the Green Building Council of Australia has forged a collaboration with London-based Climate Bonds Initiative.
Climate Bonds Initiative has developed the Climate Bonds Standard, a fair trade-like labelling scheme for bonds to help investors and governments prioritise investments that address climate change. Under a new partnership agreement, emissions data gathered to achieve Green Star – Performance ratings will be recognised under the standard.
This is great news for industry. It will avoid duplication of effort in reporting while also giving property owners a clear avenue to attract new sources of funds from large-scale institutional investors seeking low-carbon assets.
Is the agreement a game changer for Australia’s property industry? Climate Bonds Initiative thinks so, with the organisation’s CEO Sean Kidney arguing “green property bonds now stand to become the largest slice of the green bonds market.”
As investors demand reliable data on energy efficiency and sustainability to help guide their decision-making, the GBCA has also forged a partnership with GRESB, the Global Real Estate Sustainability Benchmark for real estate portfolios.
In 2014, GRESB covered 637 funds representing $2.1 trillion in property value. Australia had 44 participants, with a gross asset value of $131 billion.
GRESB has recently released Green Bond Guidelines for the Real Estate Sector to identify characteristics of eligible green projects. The guidelines confirm that “assets certifying to a rigorous green building rating system” such as Green Star may serve as the basis for eligible green projects.
While there is still work to be done before we hit the $1 trillion mark, it’s clear that the independent verification provided by Green Star provides a solid guarantee that a bond is truly green.