According to the World Economic Forum, at least $700 Billion should be invested yearly in order to monitor and maintain stable carbon levels. ‘Green financing’ is an innovative solution to this monetary issue that promotes the investment of private funds. Holistically, green financing is an idea that allows investors to profit off eco-friendly projects.
Green Bonds are an example of this financing popular with the World Bank. Since 2008, they have issued over $10.2 Billion worth of this product. During this time period, they have had more than 135 transactions in 18 different currencies. Projects that these bonds finance include temperature, precipitation pattern, and sea level based projects. The primary source of Green Bond financing is through private enterprises, however, governments have slowly become more involved in these solutions as well. For this reason, there is a need for innovators such as the world bank to excel growth in this field.
Specifically, in The Netherlands, green bonds have increased in popularity as a method of profiting off of sustainable energy production and consumption. This year, The Netherlands were award winners during the 2017 Climate Bonds Annual Conference and Green Bonds Awards. This country developed an innovative residential mortgage-backed security focusing on green energy solutions in private homes. In June 2016, these bonds were issued for $557 million.
A reason for doubt regarding the future success of this line of financing is due to asset-backed securities and their scrutiny since the financial crisis. Mortgage-backed securities, a type of asset-backed security was a catalyst for the financial crisis. The fact that green financing is a new type of asset-backed financing worries investors and may limit capital funding. With this being said, there appears to be room to grow in this industry. The OECD estimated that asset-backed securities could reach between $280-380 Billion by 2035 for renewable energy, energy efficiency, and low-emission financing alone.