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Green bonds are now going mainstream and are an essential component of impact investing and responsible investing. Impact investing is a relatively new set of financial instruments that aims to generate “social and environmental impact alongside a financial return” (Global Impact Investing Network, 2018). On the other hand, investors undertaking responsible investing are responsible since they want to respond to changes in the regulatory environment, such as in the context of the EU’s Sustainable Finance Disclosure Regulation (SFDR) or the impending SEC regulation. 

Green bonds are issued across broader sectors, free from the traditional focus on stable sectors such as utilities. Investors are now dealing with the increasing breadth and depth of the green bond market. Investors need to differentiate more rigorously between green bond structures based on carefully evaluating the characteristics and the materiality of ESG in each issue as they grapple with climate change and a changing world.

We aim to provide you with a suite of data and metrics that delivers rapid value to inform on the impact outlook and risk associated with various asset classes. Our longer-term goal is to continue to provide ongoing data refreshes and updates with new metrics as we release each quarter.

What to Measure for Green Bonds

Previously, the Floodlight team has estimated relevant metrics for impact investing in different bond products. We assessed how cities (municipalities, communities, or regions) respond to climate change, how good they are with water management, how effective their health and safety policies are in the protection against accidents, how they manage their public housing, how they focus on gender inequalities in pay, and how they view social justice in the context of energy spending. All of these factors have material impact on the city outlook, the bond rating, and long term return and risk profile for the bond.

Blue Bond Case Study

In the case study, we want to show the investment in ocean resources using blue bonds, a cousin of green bonds. The UNDP estimates that the blue economy is around US $3 trillion annually, making it the world’s seventh-largest economy based on GDP, supporting the livelihoods of about 3 billion people. The UN SDG 14 Life below water has the second lowest amount of capital invested of any SDG. But the ocean supports sustainable development and reduces climate change’s impact. Conservation agencies are partnering with countries to fund global conservation. 

We examined areas in Southeast Asia and Indonesia to build a comprehensive human and natural capital database. We also examined biodiversity and specific species richness measures to see impacts and longer term trends on specific environments. Our database on mangroves in Indonesia offers an excellent context for blue bonds. Mangroves provide a protective shield against sea level rise while at the same time acting as a refugium and nursery habitat for fish. Since mangroves offer protection against saltwater intrusion providing optimal guard rails for freshwater and food security, hence mangroves are the perfect nature-based solution corporations can invest in to achieve carbon neutrality by 2050. 

Mangroves rooted in Indonesia's climate target


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