Whatās Going On Here?Europe issued its first-ever green bond to record demand on Tuesday, which makes you wonder if thereās a more popular Bond in the world right now. What Does This Mean?Green bonds ā those used to raise money for environmentally friendly projects, like clean transport and energy-efficient buildings ā have been proving popular with an increasingly eco-minded investor base. In fact, the market grew by 95% a year between 2007 (the year the first green bond was issued) and the end of 2020, when the total amount raised also hit the $1 trillion mark.
The European Union (EU) has stayed out of the space until now, but that all changed when it issued $14 billion worth of green bonds on Tuesday. Trouble was, it completely underestimated demand, with investors putting in $156 billion worth of orders ā the most for green bonds ever. Sit tight, yāall: the EUās planning to sell nearly $275 billion more over the next few years. Why Should I Care?The bigger picture: Money talks.
These green bonds are caught in a virtuous circle right now. See, high demand for the assets pushes up their price and drags down their yields, which subsequently brings down their interest rates. This, at a time when the equivalent traditional bondās yield ā and in turn interest rate ā is higher. That means issuers can raise funds for green projects much more cheaply than they can non-green projects, which incentivizes them to think more sustainably.
Zooming out: Green bonds have banksā blessing.
Talk about the gift that keeps on giving: data from Bloomberg shows investment banks have earned $3.6 billion in fees this year from helping sell bonds advertised as āgreenā, āsocialā, or āsustainableā (tweet this). Compare that to the $1.6 billion theyāve made doing the same thing for fossil fuel companies, and banks might be happy enough for this trend to keep accelerating. | 