Green finance blooms as investors look beyond profits

December 1, 2018 by Angélina Boulesteix
Combining profits and ecology is becoming increasingly popular among investors

Environment-friendly finance is blooming thanks to investors willing to weigh profits against ecology, but decisions about meaningful investments can be complex.

At first sight the idea of "green finance" as a vehicle to protect the environment or help businesses in their transition towards a more sustainable future seems non-controversial.

But in fact, green finance lumps together a dizzying array of options and a debate is raging over which ones are truly worthy of green investor money—and which aren't.

Oil? Nuclear?

What about, say, oil companies? No way, respond critics, pointing to the damage that the exploration and use of fossil fuel has done to the planet.

But others say it would be ecologically responsible to help petroleum majors shift towards a greener future by developing alternative energy sources.

Nuclear energy is another hot potato. The industry was once unanimously reviled as the arch enemy by the environmental movement, but some now admit that the absence of damaging greenhouse gases from nuclear power stations has given them pause.

'Exponential growth'

A decade after the launch of the early green bonds—long-term borrowing for environmental projects—investors' options have grown dramatically, but the share of green instruments in global finance is still small.

"Green bond issuance in 2018 so far have reached $156.8 billion, which is around two percent of the global bond market," said Frederic Gabizon, head of Debt Capital Markets at HSBC France.

Good or bad? Nuclear power is a tricky one for green investors
"This may seem marginal, but growth has been exponential since the start," he said, adding that investors needed to take the long view given the slow pace of green infrastructure growth.

Pressure from civil society, governments and private citizens has prompted money professionals to look beyond purely financial motives as they respond to green investor interest, and to polish their image along the way.

It is true that green investments rarely outperform traditional placements in terms of short-term yields, but modern investors seem to be taking a broader view than just monetary returns.

'You can't breathe'

"We're seeing a new young generation of savers coming through now, who want slightly different things," said Rob Hardy, head of EMEA corporate governance at JPMorgan.

"There is no point in earning a lot of money if you can't breathe the air," he said.

There is no binding global regulatory framework as yet for green finance, but most professionals apply the so-called "green bonds principles" issued by the International Capital Market Association to their own operations.

In a wind farm project, for example, the borrower must prove that the money really was used for the farm's construction, and be able to provide an exact measure of the project's environmental impact.

External auditing has now also become commonplace, according to Rahul Ghosh, senior vice president for global environmental, social and governance questions at Moody's, a ratings firm.

"Today in Europe, I believe more than 95 percent of green bonds issued in the market will carry some sort of external review," he said.

What's the point of money if you can't breathe, young investors wonder
Fight green washing

This trend, he said, was particularly important to combat "green washing", the attempt to put an environment-friendly spin on practices that are actually harmful.

"Even if the methodologies have not all been standardised, we are starting to have tools to tackle the complexity of this subject," said Sandrine Enguehard, a green finance specialist at French bank Societe Generale.

"You can't just limit yourself to measuring pollution at the end of an exhaust pipe," she said.

Experts say evaluating the carbon footprint of a wind turbine is relatively easy, but what about the complexity of measuring the environmental impact of an urban rehabilitation programme?

Homework

"As an investor, you have to do your homework, spend some time to be sure it isn't green washing," said Bram Bos, a green bond portfolio manager at NN IP, an asset management firm.

Green washing is, however, still very common, according to the French Social Investment Forum, an association promoting responsible finance.

"Although outright lies are very rare thankfully, there are still bad practices and some people abuse the ecology argument," it said.

But if they do, they risk losing their good name in the investment community with serious consequences, according to Stephane Marciel, head of Sustainable Bonds at Societe Generale.

"Reputation is a very powerful weapon," he said. "If funds are not used properly, the borrower's reputation is ruined and they lose access to the market."

Explore further: Climate summit: The greening of international finance

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6 comments

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Eikka
5 / 5 (2) Dec 02, 2018
"green washing", the attempt to put an environment-friendly spin on practices that are actually harmful.


Or ineffective, or just marginally helpful. In many cases, money is being spent to achieve pretty much nothing - simply for the purpose of doing business for business' sake - and the trick is to invent a metric of measurement that makes nothing look like something to pass the audits.

The same trick is used to inform the general public about renewable power. Instead of contrasting the results with something meaningful and easy to understand, the figures are quoted in terms that are impossible to relate with anything else. The aim is to keep a positive hype going on.

"This windmill can power a thousand households" - okay, but what does that mean?

By keeping up the pretense, the public is mislead to think everything's going just fine and that actually harms critical investments.
Eikka
5 / 5 (2) Dec 02, 2018
Case in point:
"Wind turbine can power 6000 households"
https://www.popsc...useholds

Okay, so 6 MW is enough for 6,000 households. Let's take that at face value.

There were 28 million households in the UK
There were 19,837 MW of wind power in the UK in 2017
Therefore over 70% of UK households should already be wind-powered

This isn't the case. Why?
https://assets.pu...2018.pdf
The domestic sector (...) space and water heating account for in the region of 80 per cent of final energy consumption. (...) most of the demand for space and water heating is met by gas
In fact, electricity accounts for just 12% of household energy demands according to the charts.

All that wind power would really power about 9% of UK households - not 70% as insinuated by the industry.
WillieWard
5 / 5 (1) Dec 02, 2018
"..Environment-friendly.."
Eco-friendly, if you don't care about birds & bats, natural landscapes & wildlife habitats, aside the fact that for each gigawatt of installed-capacity of intermittent renewables it's needed a gigawatt from coal/oil/gas/fracking to keep lights on when wind isn't blowing or sun isn't shining or during prolonged droughts.

"..arch enemy by the environmental movement.."
The environment movement has nothing to with protecting the environment and reducing emissions, it has more to do with money and ideological power.
"Greenpeace: "green on the outside, red on the inside, like a watermelon"
"Greenpeace is Marxist political organisation. Has nothing to do with environment and climate"
"Greenpeace is directly, or indirectly responsible for; German coal mines, by opposing nukes. Also tropical deforestation, by encouraging the EU Biofuel mandate Also, millions dead or blinded, by opposing GMO rice Also, millions dead, by opposing DDT use for malaria"
julianpenrod
3.7 / 5 (3) Dec 02, 2018
In fact, "alternative energy" systems harm the environment and worse than "fossil fuels".
Converting wind energy to electricity takes away some ability of wind to do work. And wind does a great deal. It distributes seed, moves topsoil and moderates temperatures. Already, areas downwind of windmill farms are found to be abnormally warm.
With their large areas of shiny reflective surfaces, solar farms prevent clouds from forming, superheat dust overhead and create massive disparities between the temperatures of the air and the ground. Already, solar farms are said to be causing city like "heat island" effects.
If it wasn't for the claims about "fossil fuels", "alternative energy" systems wouldn't be allowed to be built, and those who invested in them would lose their investments.
RNP
not rated yet Dec 02, 2018
Mis-post
RNP
not rated yet Dec 02, 2018
Posted in error.

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