Towards a green economy BES asset class
Biodiversity mitigation/offsets Bio-carbon:
Voluntary over-the-counter (forestry carbon), incl. REDD+ Chicago Climate Exchange – forest carbon
Cosmetics, personal care, pharmaceuticals: bio-prospecting contracts
Market value US$ 1.8 – 2.9 billion
US$ 31.5 million US$ 5.3 million
Clean Development Mechanism (CDM) – afforestation/reforestation US$ 0.3 million US$ 30 million
Certified agricultural products, incl. Non-Timber Forest Products (TFPs)
Certified forest products – Forest Stewardship Council (FSC), Programme for the Endorsement of Forest Certification (PEFC)
Payments for Watershed Services (private voluntary) Payments water-related ecosystem services (government)
Other payments for ecosystem services (government-supported)
Private land trusts, conservation easements (e.g. North America, Australia)
US$ 40 billion
US$ 5 billion (FSC certified products)
US$ 5 million (various pilots e.g. Costa Rica, Ecuador)
US$ 5.2 billion US$ 3 billion
US$ 8 billion (in the USA alone)
Table 4: Market potential for various BES asset classes Source: UNEP FI BES (2010)
REDD+ and related initiatives, such as new insurance products related to forest carbon, (see Box 3) demonstrate an increased understanding of the potential market scale for financial services and the policy steps needed to facilitate development of such markets. Appropriate, clear and consistent global and national policy frameworks will be critical if the BES market is to be developed at scale. For many mainstream insurers, insurance premiums for managed forests barely reach the scale to classify it as a market per se. However, given the right global policy choices within climate negotiations in the coming years, the carbon market in forests could reach US$ 90 billion by 2020 (CDC Mission Climat 2008).
Green bonds The green bond market is still relatively small, but has the support of triple AAA rated institutions and growing momentum. Bonds are a very regular means for governments, institutions and even large corporations to raise debt (borrow money) from the capital markets. In recent years, the term green bonds, or sometimes clean energy bonds or climate bonds, has been increasingly featured in discussions about finance for clean development3
. Green bonds are simply a variant of
general bonds wherein the issuer of the bond guarantees to use the money raised for some specific environmental purposes. They are designed to particularly attract investors who wish to lend money for these purposes.
3. The Climate Bonds Initiative is a project established in 2009 by the Network for Sustainable Financial Markets (NSFM) operating as a joint project of NSFM and the Carbon Disclosure Project. http:// climatebonds. net.
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The market for green bonds is still very limited. Although issuance of green bonds is relatively small in size, current issues provide an encouraging example. EIB and the World Bank (see Table 5) issued various green and climate- friendly bonds between 2007 to 2010 valued at US$ 1 billion and US$ 1.5 billion respectively. Additionally, the IFC has issued four-year US$ 200 million fixed-rate green bonds for 2010 to 2014 to finance renewable energy and energy efficiency projects in developing countries. In 2010, the ADB and African Development Bank both issued their first Clean Energy Bonds.
While issuances of green bonds from the multilateral development banks have garnered much of the recent attention, green bonds have also been used at a municipal level to finance green projects. For example, in the United States, a green bond is a type of tax-exempt municipal bond, issued by organisations and local governments that have been qualified by the US federal government to do so. The full name for these green bonds is a Qualified Green Building and Sustainable Design Project Bond. These green bonds are meant to promote environmentally friendly land use and development, for example, the Destiny USA retail complex in New York that expects to have all of its energy needs met by renewable sources.
The global market size of bonds in emerging markets alone stood at US$ 79 billion in 2009 (IMF 2009), which suggests a greater potential for green bonds, for example, energy efficiency bonds for large scale retrofitting of composite urban units. High-grade fixed income investments, such as bonds, represent a promising instrument for
2008 2008
2008
Year 2008
2008 2008 2008
2008 2008 2008 Market type
Cap-and-trade/ voluntary
Private voluntary Private voluntary Cap-and-trade
Private voluntary Private voluntary Private voluntary
Private voluntary Public
Public Public
Source Ecosystem Marketplace, 2009 Ecosystem Marketplace, 2009
The Economics of Ecosystems and Biodiversity study (TEEB) D3
Bishop et al., 2008. Building Biodiversity Business.
TEEB D3
TEEB D3 TEEB D3
TEEB D3 TEEB D3
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