Thursday, November 4, 2010

Sustainable Bonds Hope to Help Fix the Planet

Sustainable Bonds Hope to Help Fix the Planet -

SINGAPORE — Financial experts may debate how much it would cost to shift the world to a low carbon economy, but they agree on one thing: the amount would be phenomenal. The International Energy Agency in Paris, for example, has estimated that it would take $46 trillion in additional clean-technology investments over the next 40 years to halve carbon emissions by 2050.

...Today, funds mobilized to address climate change are primarily coming from the private sector. While there is also some public investment, there remains a clear gap between what is needed to deal with climate change and what is available. How to close that gap has become a subject of intense debate.

For Ben Caldecott, head of the British and European Union policy department at Climate Change Capital, a London-based environmental investment manager, the answer is clear. “The only pool of capital deep enough to finance our low carbon transition is that held by institutional investors and players in the debt capital markets,” Mr. Caldecott said. “New green bonds are a way of accessing this pool of money.”
But, he cautioned: “Investors want to see a liquid market in long-dated asset-backed bonds that are investment grade and those criteria have yet to be met for green bonds. The market will buy these new debt products, but for this to happen at scale we need to create a liquid market first. It’s a bit of a chicken-and-egg story.”

Sean Kidney, chairman and co-founder of the Climate Bonds Initiative — an international network that advocates raising money through the bond market for climate protection projects — argues that “themed” bonds have long been a way to raise large sums of money for specific purposes.

For example, “the U.S. civil war was financed with war bonds,” Mr. Kidney told delegates at a carbon conference in Singapore last week. “Although these war bonds were targeted at retail investors, most of the money raised came from institutional investors.”

The retail investors’ campaign served to engage the population, creating political pressures that drew in the institutions, Mr. Kidney said, suggesting that themed climate change bonds could be used in a similar way to mobilize retail and institutional investors on the issue.

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