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Green Bond Insights
Biodiversity begins to bloom.
We need ants to survive, but they don't need us at all.*
Biodiversity in green bonds
With the COP15 biodiversity conference scheduled for December, we expect biodiversity to rise up the agenda of green bond investors and issuers. While most green bond financing to date has been for carbon related projects, 17% of green bonds outstanding or about USD274bn make some kind of reference to biodiversity.
17%
Share of green bonds outstanding that make some kind of reference to biodiversity.
Competing priorities
But that does not mean 17% of funds have been allocated to biodiversity. In many cases, biodiversity is competing with other uses of proceeds. For example, neither Indonesia nor Chile have to date allocated funds from their green bonds to biodiversity, despite their green bond frameworks allowing them to do so.
Challenges
Another challenge is that there are a great many different measures of biodiversity which vary by sector and issuer, and there is no simple equivalent to tonnes of CO2 nor a single target comparable to limiting global warming to well below 2°C.
There is no simple equivalent to tonnes of CO2 nor a single target comparable to limiting global warming to well below 2°C in the labelled bond market.
Blue vs Green
Issuers also need agency over biodiversity. We think biodiversity is particularly relevant to issuers exposed to forests or oceans – for example paper and pulp companies, and to a lesser extent, food manufacturers. Blue bonds provide a way to brand green bonds funding ocean projects, but remain a small part of the market.
Competing priorities
But we think that COP15 and its associated Global Biodiversity Framework (GBF) will be beneficial for the green bond market. First, they should help raise the profile of biodiversity among issuers and investors. Second, one of the strengths of the green bond market is that it can fund environmental objectives without waiting for agreement between governments. And third, while we think it is likely that biodiversity will need multiple targets, the GBF’s action targets should help guide green bonds which address biodiversity.
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