Can Apple’s $ 1.5 Billion Green Bond Inspire More Environmental Investments? | Sustainable business custodian


OOn the surface, green bonds seem counterintuitive: why would a company willingly take on debt to finance environmental efforts? But Apple’s recent decision to issue your first green bond suggests that this type of investment could play a key role in controlling global warming.

Apple’s $ 1.5 billion green bond, announced last month, will fund several initiatives, including the company’s conversion to 100% renewable energy, the installation of more energy efficient heating and cooling systems and an increase in the company’s use of biodegradable materials. A green bond, like a typical bond, is simply a way to borrow money, but it is issued specifically to finance environmental projects.

Apple’s green bond reflects a growing concern among businesses about the economic impact of climate change. Companies are responsible for the majority human-made greenhouse gas emissions, which raise average temperatures around the world and affect the bottom line of many companies. Some, including Apple, realize the need to invest in environmental resources, such as watersheds or forests, to protect sources of their products.

Lisa Jackson, Apple’s vice president of environment, policy and social initiatives, told Reuters that the company decided to issue its green bond after the December United Nations climate summit in Paris, during which hundreds of companies pledged to fight climate change. With its sale of bonds, Apple became the largest U.S. company to issue a green bond – although Toyota still holds the crown of the largest corporate green bond ever offered in the U.S. with its $ 1 green bond. , $ 75 billion issued in 2014.

Global sales of green bonds, including corporate and government bonds, since 2012. Photograph: Climate Bond Initiative

The green bond market is still in its infancy. According to Climate Bonds Initiative, a UK non-profit organization that follows the market, the first green bond was issued in 2007, and the first corporate issue only took place in 2013. Since then, a handful of leading companies plan have jumped on the bandwagon, including EDF, a French electricity company, and Bank of America, which used the proceeds of lending money to cities and other businesses for the installation of solar panels, wind turbines and LED lighting.

For global businesses, changing operations to cope with the impact of climate change takes a lot of time and money. As a result, many companies have traditionally been unwilling invest in renewable energy or other climate projects without a significant return on investment. For example, Apple will have to raise billions of dollars to achieve its ambitious plans to reduce its environmental impact. Last year he pledged to spend $ 848 million over 25 years purchase enough solar power to offset all the electricity used in its business and retail operations in California.

While green bonds have been commonly used to fund renewable energy projects, an increasing amount of money is going to projects that help offices and other buildings use water and other energy more efficiently, said Andrew Whiley, spokesperson for Climate Bonds Initiative. Electric cars and low-carbon transportation are also becoming popular, he added.

Globally, the green bond market is expected to continue to grow. According to the Climate Bonds Initiative, the market, including government-issued bonds, reached an all-time high of $ 41.8 billion in 2015, up from $ 36.6 billion in 2014 and $ 11 billion in 2013. The HSBC financial services company plans between $ 55 billion and $ 80 billion in green bonds will be issued worldwide in 2016, while the Climate Bonds Initiative estimates sales will exceed $ 100 billion.

Toyota’s green bonds demonstrate growing investor interest in transport in particular. The company has issued two green bonds totaling $ 3 billion since 2014 and has used the money to finance rentals and loans for its fuel-efficient cars, which it defines as those that drive 35 miles per gallon or use engines. hybrids.

Clinton Moloney, head of sustainability advice at PricewaterhouseCoopers, said as the effects of climate change became increasingly devastating and widespread, green bond projects could become more complex. For example, the proceeds can be used to build a sea wall to help protect the San Francisco Bay from rising sea levels, or to restore marshes that help absorb runoff during a major storm. .

“We can do environmental projects that use concrete and steel, or we can also think of nature-based solutions,” Moloney said. “The evaluation of these projects needs to be more sophisticated. This is where we are headed.

Another issue facing green bonds is transparency. For investors who are not only interested in making money, it can be difficult to determine the environmental impact of their investments while ensuring that the money is spent as promised. As a result, a number of organizations have developed rules and measures to help both corporate borrowers and investors track and understand how money is spent.

One of those efforts comes from the International Market Association, which has worked with investment banks or other investment firms such as JPMorgan Chase, BlackRock, and the World Bank to create a set of guidelines called the Principles of green bonds. The guidelines define the types of environmental benefits that could be covered by a green bond, such as pollution reduction or wildlife conservation. They also recommend an annual report by bond issuers on how they are using the proceeds.

“The more confidence investors can have in the green good faith of a project, the better the market will perform,” said Moloney of PricewaterhouseCoopers.

For its part, Toyota communicates directly with investors to ensure the transparency of its green bonds. To show investors that its green loan money is being spent correctly, it publishes a monthly report to show the amount spent on leasing and loans for qualifying models, like the Prius.

“Investors were able to see how the funds were deployed and make their own decision, [and] if it was what we promised, ”said Adam Stam, National Head of Secured Finance at Toyota Financial Services.

  • This article was amended on March 20, 2016 to correct the spelling of the phrase “reining in”.

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