Investing in ecology – the green bond market

Investments in ecology are a global trend, and eco-ideas bring great returns for investors. Investments in ecological projects have become an effective way to improve a company’s image and therefore this direction is becoming more and more popular.

Ecology and investments

Global warming and climate change are having a major impact on the world economy. This is one global problem that the whole world must work together to solve. Governments of different countries are ready to borrow billions and invest them in the development of ecological technologies. Read more about investments here.

The main financial instrument in such situations is green bonds, which are just like other debt securities in the technical sense. Investors receive them just like other bonds. The issuer receives the money to implement its own project.

So-called “bonds” or notes are securities with a tangible value. In other words, they are a loan, but the company that issues the bonds automatically receives money from investors in exchange for promises to repay the debt in a short period of time. The main difference is that the money must be used for specific needs and can be spent on startups that have a positive impact on the environment.

Examples of such projects are the search for alternative energy sources, the development of “clean” transport, etc. No less important are projects for the construction of “smart” buildings and modern developments affecting the distribution and recycling of garbage and waste.

History of the emergence of green bonds

Green bonds first emerged on the international scene more than a decade ago. The bonds were first issued in 2007, and they were aimed at obtaining financing for various projects in the field of finding new energy sources and increasing the energy efficiency of technologies.

At the time, green bonds were attracting rapid interest from investors. Beginning in 2007, the annual growth rate was about 230%. In 2007, bonds were issued for $0.8 billion, and in 2012 – for $2 billion.

A major surge in the popularity of green bonds came in 2013, when the total number of bonds tripled and reached a funding volume of up to $11 billion. In 2014, green bond investments totaled $36.6 billion, and in 2015 the figure had already reached $41.8 billion. As of 2017, it was $155.5 billion.

Only in 2018 the growth slowed down and the figure was at 167.3 billion. However, against the background of globalization, it is expected that in 2019 the investment figures will return to the former momentum and can reach 200 billion.

Green bonds on the global stage

The organizations issuing green bonds are usually states or municipalities, as well as a variety of organizations and funds. As of 2018, the leaders in this industry are the United States and China, as well as France. The Asian market is still only gaining momentum, despite the fact that the global environmental problems there are the biggest (of which China alone is worth mentioning).

America has taken the lead because of the mortgage conglomerate FannieMae. This organization oversees a third of the American sales market. The company’s funding is mainly allocated for modern projects to find renewable energy systems. Ecobonds by value amounted to 37.7 billion dollars in this area.

In Eastern Europe, the market is not yet as rosy as in the U.S., but still the sphere is actively developing. In 2016, Poland issued green bonds on its own. Lithuania did the same in 2018. Today Russian authorities are working on adapting the relevant foreign experience with different funds.

In 2018, the Central Bank of Russia formed roadmaps that involve the creation of a separate sector for eco-bonds on the Moscow Stock Exchange. The project of “green” bonds of Russia was actively supported by the Ministry of Economic Development.

They believe that such funding is a “global trend”. The organization stated that it is ready to finance such a sector of the market in Russia, as well as to receive appropriate tax exemptions for this purpose.

Which companies are connected to the environment

Companies that can directly or indirectly benefit the environment can be divided into several groups based on their field of activity.

Alternative energy. This is probably the broadest category. This includes companies that develop and produce solar panels and electronics for them, wind turbines, and so on.

Alternative ways of generating energy can be more expensive than traditional ways, but they reduce carbon dioxide emissions, use renewable energy sources, and have some other advantages.

First Solar produces thin-film solar modules. They are one of the leaders in the industry. SolarEdge Technologies develops solutions that make solar energy more efficient, and Sunrun sells, installs and services solar panels.

Ormat Technologies is in the geothermal energy business. Vesta Wind Systems manufactures and installs wind turbines, and NextEra Energy generates large amounts of solar and wind energy.

Water treatment. Water is an important resource that gets polluted from industry and urban wastewater. So treating water so that it is drinkable and does not harm ecosystems is a pretty promising niche.

A good example of a public company in this field is Ecolab, which, among other things, makes wastewater treatment and filtration systems and helps customers waste less water.

Collection, recycling, reduction of garbage. Waste management can reduce pollution of nature, and some of the waste can be recycled, which also saves non-renewable resources.

One example of a company that works in this field is Waste Management, which collects trash and recycles it. Republic Services does roughly the same thing, and biopolymers from Danimer Scientific allow you to make plastic that will decompose without polluting the environment.

Then there’s Covanta, a company that generates energy from trash. But it was bought by another company, and since the end of 2021 its shares have not been traded on the New York Stock Exchange.

Other areas. There are other areas that can be attributed to care for the environment, at least indirectly. For example, the development and production of electric cars, as Tesla, Rivian and other companies do. Admittedly, there are serious questions about the damage electric car batteries can do to the environment. But there are also companies that recycle them, such as Li-Cycle Holdings.

We can also mention companies related to energy efficiency in buildings, such as Acuity Brands and Kingspan Group. Also include Beyond Meat, a company that makes artificial meat, among the green ones.

Equity funds. Rather than buy stocks of individual companies, you can put your money into a stock fund made up of lots of different stocks. This will reduce the risk: the fund is little dependent on the problems of a single company.

For those who believe, for example, in the prospects of alternative energy, the iShares Global Clean Energy (ICLN) fund is the right choice. It contains stocks of about 80 companies from at least 15 countries. There are also funds separately dedicated to solar energy, wind power and so on.

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