Why green bonds are so incredibly popular

The green bond market has multiplied by twelve in four years, and Apple has now hopped on board too. ABN AMRO’s 500 million euro green bond attracted twice as many investors as possible. Joop Hessels, Executive Director, DCM Green Bonds at ABN AMRO, thinks this is just the beginning.

A green bond is a bond that investors can use to invest in sustainable projects, such as loans for sustainable real estate or making public transport more environmentally friendly. How does it work? An institutional investor, like a pension fund, buys a ‘debt certificate’ from a bank or a company. The loan serves as financing for sustainable projects, and a fixed interest rate is paid on the loan. When they buy a green bond, institutional investors know exactly what the sustainable impact is of their investment. A third party checks whether the money is being used in a transparent manner.

Exponential growth

The green bond market has undergone exponential growth in recent years, says Joop Hessels. ‘In 2012, 2 billion dollars’ worth of green bonds were issued. This figure rose to 11 billion dollars in 2013 and jumped to 36 billion and 41 billion dollars in 2014 and 2015 respectively. I expect it to end up around 60-80 billion dollars in 2016. A lot of countries are making use of green bonds. China, for example, is using them to finance large sustainable investments.’

Sustainable real estate

In June 2015, ABN AMRO was the first European bank to issue a large green bond. The bank intended to set the total amount at 350 million euros. In response to heavy demand from investors, we ultimately set the total at 500 million euros. We are using the proceeds to finance and refinance sustainable real estate: mortgages for energy-efficient homes, loans for solar panels and sustainable commercial real estate.

Making it happen

‘Demand for sustainable investments is high,’ says Hessels. ‘The Dutch pension funds APG and PGGM want to raise the percentage of their sustainable investments. APG already invests 28 billion euros sustainably and it wants to boost this figure to 58 million euros, and PGGM even wants to quadruple its volume of sustainable investments. But it’s not easy to demonstrate that the money is being used sustainably. How can you put a figure to it? It’s very hard to gain insight into the carbon emissions produced by sustainable investments. But investors want to know these figures. Green bonds give them the answers.’

Impact reports

According to Hessels, the great thing about green bonds is that investors know exactly how much is being invested in which green projects. Hessels: ‘Our own green bond goes one step further. We produce ‘impact reports’ that give investors detailed information on how and where their investments are making an impact. The total carbon reduction achieved through our green bond comes to around 50,000 tonnes. That’s equal to the annual emission of more than 10,000 cars.’

Who decides what is ‘green’?

ABN AMRO has had its green bond externally assessed by Oekom, a sustainability rating agency, based on quality, sustainability and transparency, in accordance with the Green Bond Principles. The green bond has also been certified by the Climate Bond Initiative, based on the standard for sustainable real estate developed by this organisation. This external validation is one of the reasons why the green bond has been so highly praised. Hessels: ‘We won the International Financing Review Green Bond of the Year award. We were recognised for the fact that we show, step by step, what the money is being used for. And what happens to the money that has not yet been used. We invest this money temporarily, in a sustainable manner.’ Hessels says that ABN AMRO is the only issuer of green bonds that gives investors this assurance.

No flash in the pan

The demand for green bonds is high and the supply is still in its infancy, Hessels confirms. But the potential is huge. ‘We are hearing great numbers. I expect the market to grow explosively. A lot of parties are involved in green bonds, and a clear trend is visible. This is no flash in the pan.’

The Apple trigger

Apple’s move is a sign, says Hessels. The tech company has issued 1.5 billion dollars in green bonds, the highest amount ever issued by an American company. Apple intends to use the money raised to finance sustainable energy and buildings. Generating energy with wind and sun, for example, sustainable new buildings and sustainable renovations. Hessels: ‘This is a fantastic trigger for other companies. One of the world’s most innovative firms has announced its sustainable ambitions.’