New forms of financing for investment can help us transition to a sustainable economy, if we first get clear about who benefits, says Mike Tuffrey.
Every so often there’s a new kid on the block. Right now it’s issuing green bonds.
Last month, Sainsbury’s borrowed £200 million to invest in environmental, sustainability and water-related projects. In March, Unilever issued a £250 million bond, lining up a pipeline of projects for investment in water, waste and GHG reduction. Back in January, a consortium of bulge bracket investment banks devised a set of voluntary guidelines – the Green Bond Principles – to help get this new type of financial instrument onto a sound footing.
The market is estimated to grow to around $50 billion by the end of this year and big name players like BlackRock and Barclays are launching investment portfolios and indexes. There’s talk of motor manufacturers and even oil companies joining the rush, to finance activities such as zero-emission cars and carbon capture and storage schemes. Stand by for accusations of ‘green-washing’ as old economy companies highlight aspects of their operations that are somewhat less environmentally damaging, while continuing to trash the planet in their mainstream.
In fairness, with the market still in its infancy stage, there’s bound to be a range of models. Some will simply promise how the proceeds are used, while in others the lender has direct exposure to the success or otherwise of those projects for their interest payments and eventual capital redemption. At one end it’s just smart fundraising in a crowded and competitive bonds market place. The other end marks a real transition to a ‘green economy’.
That distinction parallels a wider challenge that faces the whole corporate responsibility and sustainability movement – the difference between reducing harm and shifting to an alternative economic model that’s viable for decades to come. The former is of course welcome but not enough, the latter much harder but the ultimate goal. Against that test, how many of the burgeoning number of sustainability plans (a previous new kid on the block) would truly meet the mark?
And that leads me to ask: do we need a gold standard in green bonds – a category of financing moves to a green economy, with social as well as environmental benefits? In other words, what Fritz Schumacher called “economics as if people mattered”?
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