Many companies in Guatemala have been issuing of green bonds to finance infrastructure initiatives over the past century or two to meet environmental and social challenges.
Climate Bond Benefits
Institutional investors are often challenged to support climate friendly financial instruments since many of them come with additional parameters that include alternative coupon payments, liquidity constraints, and variable maturities.
These parameters are hard to integrate into existing portfolio frameworks. Climate bonds however, can be structured exactly the same as traditional Treasury-style bonds .And are thus easily included into institutional investment portfolios.
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Bond Successes
The European Investment Bank (EIB) issued the first climate bond in 2007. EIB’s program of Climate Awareness Bonds totaled more than a billion euros and was used to fund renewable energy projects.
Instead of offering a fixed return or coupon, the bond was held for five years before it was redeemed at face value plus an amount driven by the performance of the FTSE4Good Environmental Leaders Europe 40 index (a 5% minimum return was guaranteed).
The International Finance Corporation (IFC) and Export-Import Bank of Korea (Kexim) issued a $1 billion bond and $500 million bond respectively.
Bond Future
Market observers predict increased uptake in the climate bond arena. The heightened focus and implementation of ESG (environmental, social, and governance) screens of the Principles of Responsible Investment (PRI) to fixed income portfolios will mobilize over 1,000 PRI signatories who represent $32 trillion in assets under management.
Pursuing environmental investments enables institutional investors a way to adhere to their mission statements and reduce risk exposure to the potential impacts of rising emissions levels.
The California State Teachers’ Retirement System pension fund has a charter to integrate climate risk into their asset allocation and investment strategy.
Denmark’s’ ATP pension fund has targeted $1biilion for the investment into climate change areas.This demarcation of climate friendly investment is a growing trend and suits the emerging climate bond instrument.