Eco warriors will soon rejoice if one emergent trend comes to fruition: the prophesied green finance frenzy. No mere dream from those who wish for a better world, but a viable solution for providing much needed funds to the international economy, this system is already taking hold in China, with green bonds at its heart.
This proposed solution has arisen as a result of a shortage of funds around the world. With the United Nations stating on record that around $90 trillion will be required to fund sustainable development over the next decade and a half, many are now suggesting that governments around the world will follow in China’s footsteps, and use green bonds to fund such projects.
Here, we look at what this means for all of us…
Understanding Green Bonds
Green bonds are a concept that many will be unfamiliar with. Essentially, they are just regular bonds that you or I could apply for, but instead they are used to raise funds for sustainable projects. And with a $90 trillion shortfall to be found over the next 15 years, it seems that they’re likely to step into the breach and increase funding to the sector.
Yet despite their potential, one repeated criticism has been the lack of clarity surrounding them. The asset class remains indeterminate, with issuers able to choose whether or not to use the voluntary guidelines that attempt to clarify their exact constitution.
More worryingly still, many have pointed at the lack of sanctions that can be levied against those who renege on their promises to make sustainable investments.
Yet despite this, the general consensus regarding these new investment instruments remains positive, and many feel that they could be the saving grace of the international economy in years to come.
China Leading the Charge
Of those who put their faith in green bonds, China is perhaps their greatest champion. Already this year, $29 billion of these green bonds have been issued around the globe, and China has accounted for a fifth of these.
Many look upon their support for the immature market as a major plus in its favour, pointing out that the superpower can help to positively shape the concept of green bonds. Hong Kong, in particular, has better regulated and more transparent financial markets than the mainland, and could go a long way towards leaving a constructive stamp on the green bond industry.
Yet how far these nations will choose to do so is unclear. As many point out, Hong Kong and mainland China alike are often thought to view sustainability as an afterthought, and this could impact how eager they are to get behind the idea.
But the doomsayers do not have a monopoly on knowing how this will end. Many have heard the old adage that ‘the proof is in the pudding’, and if the support already shown by these territories is anything to go by, then a positive and influential interest in the market may well be on the cards.