Energy transition requires a lot of funding and green energy projects often have a fairly high starting and deterrent cost. There are few adequate funding mechanisms to date because banks offer only meager gateways with very little flexibility. The change in energy paradigms required new financial mechanisms, and since the UN Climate Change Conferences, many global financial institutions have been working on a solution, which is how Green Bonds were born.
Green bonds, how does it work?
Green bonds are debt securities. Companies, governments or civil societies issue bonds to finance environmental projects. Investors then buy these debt securities, which will then be repaid to them with interest. These projects must be green in scope: reducing energy consumption, reducing greenhouse gas emissions, reducing the consumption of natural resources, protecting wildlife, etc.
The Unilever Example
Early in the year 2014, Unilever issued 250 million British pounds in Green bonds in conjunction with Morgan Stanley. In a few hours, investor proposals reached 750 million (3x the asking investment). Nearly a hundred investors were finally selected, mainly private fund managers, pension funds and insurance companies. With this Green Bond, Unilever was able to successfully finance projects to improve energy efficiency and save more water in its global production network. The energy savings subsequently helped finance the repayment of the loan with interest at the scheduled maturities.
Green bonds are therefore increasingly important to develop the market for energy transition. And these funds are very popular in financial circles, as they make it possible to make safe investments while limiting the anthropogenic impact on the planet.
The Cap Town Green Bond
Cape Town in South Africa also raised a Green Bond of R1billion in July 2017. Similar to Unilever success story investors offer roughly 4.3 billion Rand for this Green Bond! The purpose of this Green Bond was to finance water treatment projects, rehabilitation and protection of coastal areas, a program to purchase electric buses, and projects to counter seasonal flooding in the city. This funding has enabled the city to adapt to climate change by implementing these projects. Green bonds are therefore in high demand in the market and they are a very effective economic lever to stimulate the global economy and improve the state of our planet.
In Canada, CoPower has democratized this approach and allows individuals to invest in Green Bond, with a minimum investment of $ 5,000, with 3-year return on investment (3.5% interest) or of 5 years (5% interest).
To see the details of such an offer and related environmental projects:
The Difference with Green Crowdfunding
Another way of funding for green projects is Green Crowdfunding. This is an online money-raising platform like Indigogo or Kickstarter, but geared towards environmental projects. On these platforms such as oneplanetcrowd, people invest individually online in a given project and receive in return counterparts: moral compensation for a donation, project-related services, products generated by this project or even loans with interest. Although, the financial mechanism is more simple and straightforward, there is more risk, because there are no automatic insurance mechanisms like with Green Bonds.
Another fundamental difference is the nature of investors involved. The sums raised by Green Bonds are often several tens of millions of dollars or more and are mainly intended for institutional investors (pension funds, investment funds, etc.). Crowdfunding, on the other hand, primarily appeals to individuals for projects that are generally human-sized and rarely exceed $ 1 million.
To see an example of Green Crowdfunding:
A changing world
With these examples, it can be seen that these financial mechanisms are increasingly important levers to develop energy transition projects, whereas until now the biggest obstacle to develop these projects was the great difficulty in obtaining loans and financing by traditional banks.
So things are taking place in order to give a growing place to the companies of change which are working for the transition from fossil fuels to green technologies. The business world is evolving faster than one thinks towards a renewable energy economy!
For more information:
Majdid Moukhous, financial analyst at Quintal Inc. (Rackam's financial products partner)
O/B: 514 845-2422 (Ext: 201) | www.quintal.co