3D5A0671(small)

Gothenburg: “Giving Finance a Color”: Green Bonds and sustainable urban development

The City of Gothenburg hosted a session at the Cities & Regions Pavilion – TAP2015 at COP21 on Thursday, 3 December. Entitled “Gothenburg: Green Bonds and sustainable urban development,” the session examined the challenges and opportunities for cities to finance sustainable urban development with green bonds.

Green Bonds are a financial tool designed to counter and reduce the impact of climate change. The initiative comes from the World Bank as a part of the process of stimulating and coordinating the activities of the public and private sectors aiming to combat the effects of climate change. These bonds mean that capital is dedicated to various green projects.

Sean Kidney (CEO and Co-founder, Climate Bonds) explained that huge amounts of money – globally, around 53 trillion – will be invested in sustainable development, the majority of it in growing cities in developing countries (Johannesburg, Mumbai, Shanghai). As Kidney put it, “cities are where the capital has to go”.

Cities are key investors in infrastructure with green potential, such as buildings, transport, water and waste. At the same time, public finance alone will not be enough to tackle climate change – private investment in climate-smart projects is necessary to put economies on a cleaner growth path. Green bonds help mobilize private sector capital toward clean development.

Gothenburg provides one highly successful example. Mayor of Gothenburg Anneli Hulthén explained how green bonds play a major role in Gothenburg’s transition. Gothneburg was selected as the WWF Earth Hour Capital 2015, and one reason was its pioneering move into green bonds, which began two years ago. Magnus Borelius (Head of Finance, Gothenburg) further explained that Gothenburg had selected four areas for investment: transport, urban development, energy and waste.

Gothenburg’s green bonds had been heavily oversubscribed (an experience that was mirrored in a recent issuing of green bonds in Massacheusetts, where over 1,000 individuals asked to be involved). Citizens had also asked whether they could buy green bonds, demonstrating the interest from the general public. Based on its positive experience, Gothenburg is continuing its green bond program, offering one green bond each year.

The panel discussion that followed this presentation explored both the reasons for the success of green bonds and the challenges for further development. Heike Reichelt (Head of Investor Relations and New Products, World Bank) pointed out that through green bonds, the World Bank had raised around 8.5 billion for around 80 projects in countries around the world, including the development of Bus Rapid Transit in Bogota.

Christopher Flensborg (Head of ESG and Climate Financial Solutions, SEB) confirmed that green bonds are “here to stay”, estimating that 10-20% of funding would go through green bonds in the next 5-10 years. This was because, he said, green bonds are extremely simple products that create interactions and “give finance a color”. ShaunTarbuck (Chief Executive at International Cooperative & Mutual Insurance Federation) was equally enthusiastic, stating that as investors: “We love green bonds – simple as that”. He also highlighted the “huge untapped potential” of nearly $50 trillion earmarked for investment in future work on sustainability.

However, Santiago Lorenzo (Head of Green Finance, WWF) reminded participants that the amount of funding currently involved in green bonds was a very small fraction of global financing, and that investors often had concerns about the “greenness” of the bonds. The panel acknowledged concerns about the nature of investment, and also recognized that other financing options are always available. However, as Reichelt said, investors in the green bond markets have other motivations. The great benefit of green bonds, she emphasized, is connections: cities can use green bonds as a way of engaging their citizens.

In addition, Reichelt felt that a major shift was underway in financing. The next generation of portfolio managers, she said, would ask themselves about the social purposes of their portfolios, taking a much more long-term view. Now is therefore the perfect time to begin engaging with green bonds.

During a discussion with the audience, Tarbuck highlighted regulation as an impediment to further development. For regulators, green bonds are too risky, he explained, adding that “we want to do this but are being hampered”. Despite the challenges, panellists were keen to emphasize the huge potential of green bonds for sustainable development and financing in cities. As Reichelt put it, green bonds are “changing the conversation – making finance people talk about climate and climate people talk about finance”.

This blog post was developed by ICLEI – Local Governments for Sustainability and the City of Gothenburg.