By Dieter Aigner, Raiffeisen Capital Management |
In recent years, green bonds have become a permanent feature of the investment universe of sustainable investors. Why? Because these bonds are specifically dedicated to financing green projects. This means that the money raised from issues of these securities is used to finance ecological projects with climate relevance. These include, for example, investments in renewable energy, pollution control, sustainable waste management, water supply and sustainable construction. The issuers of these bonds can be companies, states, municipal institutions or even multinational development banks.
In the meantime, the supply has multiplied, and the volume of green bonds has also literally skyrocketed: in 2018, it was 170.9 billion US dollars worldwide, and around 250 billion US dollars are already expected for this year. These funds are urgently needed because, on the one hand, the sustainable development goals (SDG) of the United Nations have been postulated in 2015 and, on the other hand, the international community decided at the World Climate Conference in Paris to make all necessary efforts to keep global warming well below 2 degrees Celsius compared to the pre-industrial level. Both goals require enormous investments on part of the individual states. The estimated sum needed worldwide exceeds the amount of several trillion US dollars.
In order to be able to raise these funds, the public sector, the financial industry and we, the investors, need to join forces. This in turn requires a certain set of rules and regulations, which the European Commission is currently drafting or implementing. In 2018, the European Commission has drawn up the “Action Plan for Financing Sustainable Growth”. This action plan is about redirecting capital flows towards a more sustainable economy, embedding sustainable criteria in the risk management of financial service providers and promoting transparency and a long-term perspective. A standardized classification system (taxonomy) is to be used to determine which activities are “ecologically sustainable”. This will provide a framework that the member states and the European Union must consider when introducing labels for sustainable financial products. Uniform requirements will also be developed for green bonds. This means that the issuers of green bonds must provide transparent proof that the money is (or will be) invested exclusively in green projects. This is a very important development for us.
The question of how to measure the sustainable impact of responsible investments is moving the entire industry. With green bonds, this question is comparatively easy to answer. As the spearhead of effective investing – impact investing – these bonds per se serve the purpose of reducing CO2 emissions. Investors can make a direct contribution to achieving global climate targets through their investments.
Dieter Aigner has been Managing Director of Raiffeisen Kapitalanlage-Gesellschaft m.b.H. since 2008, responsible for fund management and sustainability.