Global corporate green investment and the UN Sustainable Development Goals: How green bonds can help close the funding gap
This research identifies the potential for increased green bond issuance to support the green investment needs of large global publicly traded companies across all sectors. Comparing companies’ business as usual (BAU) to pathways aligned to the Sustainable Development Goals (SDGs), case studies illustrate how green bonds can support transitions to low-carbon business models.
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OVERVIEW
This report by Corporate Knights and the Climate Bonds Initiative under the sponsorship of BNP Paribas outlines opportunities for increased issuance of green bonds to support companies’ transition to a low-carbon economy and alignment to the Sustainable Development Goals (SDGs). Presenting selected case studies drawn from the analysis of 7148 global publicly traded companies and working across each Global Industry Classification Standard (GICS) sector, the research summarises the types of business activities that support the low-carbon transition, are consistent with SDG-alignment and can be supported through green bond financing. Notably, 21 companies included in the analysis are also members of the 2019 Global 100 Most Sustainable Corporations in the World. They alone represent US$43 billion of green capital requirements to put towards SDG-alignment, adding to the case for increased green bonds issuance.
The methodology utilises 2017 company data on capital expenditure, research and development, total loans and total assets under management. Bond data is provided by Thomson Reuters and the Carbon Data Initiative. Activities considered within the scope of SDG-alignment and capable of being financed through green bond investment include clean transition, low-carbon economy and circular economy activities. As per the Global Infrastructure Outlook, projected infrastructure investments in a business as usual (BAU) and SDG-aligned scenario differ by 23.4%; this percentage was used as the investment gap necessary to be met for all sectors except for the highly exposed energy, cement and steel sectors for which specific scenarios were constructed.
Based on the above, figures are provided to demonstrate how SDG-alignment can access the green bond market and unlock significant increases in investment capital for companies, while their historical capacity to issue green bonds is also discussed to provide a practical view of their propensity to take this path. By contrasting the level of investment available under the BAU scenario versus the SDG-aligned scenario i.e. where green investment becomes accessible, the research articulates how green bonds are an under-utilised instrument in these sectors.
Potential solutions offered to encourage greater issuance of green bonds include: agreement on definitions of clean transition bonds that can facilitate decarbonisation activities normally bypassed by conventional green bonds; stronger efforts by banks and financial institutions to enhance their green loan books; and a move way from in-or-out definitions of how green bonds are used by companies with credible SDG-alignment.
There are a range of companies profiled throughout this research including Alphabet Inc, Tesla Inc, BayerlscheMotoren Werke AG, Toyota, Suncor Energy, Total SA, Banco do Brasil, Bank of America, BNP Paribas, Sun Life Financial, Amundl Asset Management, Bombardler, Siemens AG, ABB Group, Unilever, HP Inc., Teck Resources, UPM-Kymmene, City Developments Limited, Acciona, and Iberdroia. These companies are used throughout the research to illustrate how the green economy is now growing faster than the regular economy. However, the report illustrates the need for more investment to help companies achieve the SDGs and prevent catastrophic climate change.
KEY INSIGHTS
- The green bonds market can play a greater role in the transition to the low-carbon economy than it is currently doing. The green bond market can unlock financing for a range of green investment activities by companies across each GICS sector.
- There is a gap between current infrastructure investments and the level of green infrastructure investments required to meet SDG-alignment. The issuance of green bonds can help to plug this gap which is estimated at 23.4%.
- Companies within the 2019 Global 100 Most Sustainable Corporations in the World already represent US$34 billion of green capital requirements that can be put towards SDG-alignment, representing an opportunity for green bond investment.
- Better clarity on the taxonomy and definitions of clean transition bonds can assist broader decarbonisation activities than are currently considered under the terms of green bonds.
- Banks and financial institutions can encourage green bond investment by increasing their green loan books.