In February, the International Finance Corp (IFC) issued the biggest green bond to date (also called “climate bonds”) and since then several government agencies have done the same.
IFC, part of the World Bank, issued a $1 billion, 3 year, AAA-rated “Green Bond” that’s tied to making climate investments. The interest rate is pinned to 3-year US Treasuries +15 basis points. The bond was quickly oversubscribed.
This new bond brings IFC’s green bond total to $2.2 billion. Last year, IFC raised $500 million in the first green bond in the US market.
Bond proceeds are used to leverage private capital for renewable energy, energy efficiency, and other climate-related projects in developing countries, such as sustainable forestry and methane capture. In 2012, IFC says they spent $1.6 billion in climate-related transactions.
IFC identifies potential projects which are then reviewed by climate specialist to decide if green bond funds should be used. After determining how much of the project is “green bond eligible,” IFC negotiates an investment structure, which may include co-investors, IFC loan syndications, and even donor funding.
For example, IFC gave a $10 million loan to Optima Energia, an energy services company in Mexico that does efficiency upgrades for hotels. As an (ESCo), Optima finances the upgrades (including equipment) and customers pay the company back through energy savings. IFC’s loan gives Optima the money to lay out for six projects.
In another project, IFC provided financing for La Confluencia Hydro Project, a 158 megawatt run-of-river hydroelectric power plant in Chile.
Other recent green bonds:
The European Investment Bank (EIB) issued a $75.9 million, 6 year, Climate Awareness Bond recently with an 3% interest rate. Since 2007, EIB’s Climate Awareness Bonds have raised over EUR 1.7 billion in investments, which support the bank’s lending for renewable energy and energy efficiency.
EIB is among the largest financers of climate change related projects, providing over EUR 13 billion worldwide in 2012 alone.
“Investors benefit from EIB’s strict criteria and due diligence expertise in project selection; however, they do not assume the specific project risk and repayment of the bond is not linked to the project performance,” says the bank.
Examples: A $30 million project enhanced the energy efficiency of Scottish Power’s grid by renovating and extending transmission and distribution networks. $28 million supported the Northwind Offshore Wind farm off the coast of Belgium.
This month, Germany’s MBB Clean Energy AG raised a 6 year, $94.6 million bond to invest in 1,500 MW of existing wind and solar power plants. It listed on the Frankfurt Stock Exchange and is now closed. France issued an oversubscribed bond last year.
And Massachusetts is issuing $100 million of Green General Obligation Bonds, as part of a $1.1 billion bond package on June 4. It is rated AA+.
These are standard Massachusetts State Government Bonds that are earmarked to finance “environmentally beneficial” projects in: Clean Water and Drinking Water Projects; Energy Efficiency in state buildings; Land Acquisition, Open Space Protection and Environmental Remediation Projects; and River Revitalization and Preservation and Habitat Restoration Projects.
Last year, State Street Global Advisors launched “High Quality Green Bonds,” for investors who want fixed income returns while investing in climate change solutions.
Also last year, a bill was introduced in Congress, the “Clean Energy Victory Bonds Act of 2012”, which would raise $50 billion for clean energy and energy-efficient technologies. Even small investors could participate, but it didn’t make it to the floor.
“Bonds have allowed us to finance the building of Europe’s sewer systems, the growth of America’s highway system, and the financing of two World Wars. We can now use Climate Bonds to finance the quick, global transition required to head off runaway climate change,” explains James Cameron, Vice Chair of Climate Change Capital.
Keep with climate bonds: