A wave of green government bonds is flooding markets

AWAVE OF green sovereign debt is flooding markets. Britain issued its first such bond in September, alongside other new issuers, such as Colombia and Spain. They join at least 20 countries that already issue green debt, notably Germany, which is well on its way to building a “green curve” of bonds across several maturities. Governments have together raised more than $100bn through the green route so far this year. And later this month the European Union is due to join the club. Its €250bn ($290bn) green-borrowing programme stands to make it the world’s largest sovereign issuer of the instruments.The main difference between a green bond and the regular sort is that the capital raised by it must be spent on certain environment-friendly projects. So why not raise debt the old-fashioned way instead, and simply direct the proceeds towards greenery? One advantage could be the opportunity to borrow at a lower cost. Investors may be willing to accept a lower yield for green bonds (that is, to pay a higher price for them), because they can either count their holdings towards their environmental, social and governance targets, or because it makes them look good in the public eye, says Dion Bongaerts of Erasmus University in Rotterdam.