Story of the First Green Bond Ever

In this article, I would like to talk about a birth of an idea that has blown up into a $129 Billion market today. It has also led to the birth of several other thematic bonds like itself, creating an overall $2 Trillion market around it.

Since the year 1990, with the birth of CSR (Corporate Sustainability/ Social Reporting), there has been a lot of buzz about sustainability in the corporate world. Moving forward in the timeline to late 2007, a set of people started asking questions about investing in the financial world which will help create a difference in the climate change issues the world is facing. When this group of people started looking for opportunities to invest in the sustainable area when it was limited at the time, SEB (Sandinaviska Enskilda Banken AB) came forward.

United Nations- Intergovernmental Panel for Climate Change published a report in 2007 about global warming and its catastrophic socio-economic impacts. This prompted a group of Swedish pension funds to think about what can be done to change. These investors were willing to create a positive impact connected to their bank SEB, expressing their interest in investing in green projects in a structure they are familiar with and without the aspect of any added risk.

SEB saw this as a golden chance to get institutional investors to get involved in issues like global warming and proposed this idea to the World Bank. One of the biggest strategic priorities of the World Bank is to connect capital markets to development projects, due to which this idea was a perfect fit. The further dialogue between SEB and investors explored the interests of the investors and their requirements. These Scandinavian investors were looking for products in all asset classes for a fixed income. Although this was a first for the World Bank, the fact that they finance climate change mitigation and climate change adaptation projects were in perfect alignment with the priorities of the investors as well.

So, there it was, the first ‘Green Bond’ ever. A bond that was structurally the same in terms of its financial characteristics didn’t have any project or country-specific risk and was solely earmarked for green projects (mostly renewable energy and energy efficiency projects).

Green bonds were credible, liquid, and easy to understand. This empowered the investors to invest in creating a global positive impact but at the same time stay inside their traditional normal mainstream benchmarked portfolios. For the World Bank, this was their first product with dedicated funding as well.

But this was not the only impact of green bonds. Something extraordinary happened as well with this. Environmental scientists from CICERO (The Centre for International Climate and Environmental Research, Oslo) were also brought in on the project to get a second opinion and this was the first time in history, where the financial world and scientific world connected and worked with each other hand in hand to create something revolutionary.