Report: Green bond "greenium" fuels sustainable investment in the Great Lakes St. Lawrence region

Published: Oct. 28, 2021 at 9:00 AM EDT

CHICAGO, Oct. 28, 2021 /PRNewswire/ -- A green bond premium, or "greenium," is fueling a wave of investments in environmental sustainability in the Great Lakes St. Lawrence region. A new study finds that public bond issuers in the region can lower their borrowing cost by using green bonds. The "greenium" enables governments, utilities and other public agencies to save up to 23 basis points compared to conventional bonds, based on yield spreads in the primary bond market. Investors are increasingly willing to take a discount for green bonds tied to demonstrable environmental outcomes - saving taxpayer money while financing needed improvements.

The Great Lakes St. Lawrence Governors & Premiers (GSGP) commissioned the study by Dr. Peter Adriaens, Professor of Environmental Engineering, Finance and Entrepreneurship at the University of Michigan.

"These trends are creating opportunities to increase value for taxpayers and ratepayers while enabling investments that save water and energy, reduce emissions, and protect land," said David Naftzger, GSGP executive director.

Green bond issuance has exploded in recent years, with 25 percent more green bonds issued in 2019-20 than in the preceding decade. Additionally, the total face value of green bonds issued in 2019-20 was more than three times that of conventional bonds issued in the same period.

The research also forecasts that by end of the decade, more than US$10 billion of bonds will be issued annually in the Great Lakes St. Lawrence region. Nearly US$6 billion of bonds will be issued in the region in 2021. If current growth trends hold, that amount will grow to US$7.7 billion in 2025 and to US$10.2 billion in 2030.

"The regional bond market is growing quickly as governments seek to take advantage of today's low-interest environment to make long-term investments in infrastructure and other needs. We expect this growth to continue in coming years, nationally as well as in the region, particularly given the appeal of green bonds to issuers and investors," said Dr. Adriaens.

The growth of the green bond market is part of a larger global trend that connects financial decisions with environmental and social outcomes. Sustainability mandates and climate goals are driving growing interest in green bonds, both among investors and bond issuers.

The study is the first in the Great Lakes Impact Investment Platform Research Series which focuses on key issues related to conservation finance. The Platform is working to position the region as a global destination for sustainability investments connected to water. The Platform currently showcases three dozen projects representing nearly US$4 billion in economic value.

The Great Lakes St. Lawrence region includes eight US states—Illinois, Indiana, Michigan, New York, Ohio, Pennsylvania and Wisconsin—and two Canadian provinces—Ontario and Québec. The regional economy generates about US$6 trillion annually.

GSGP launched the Great Lakes Impact Investment Platform in 2020 in collaboration with The Nature Conservancy, the Center for Smart Infrastructure Finance and the School for Environment and Sustainability at the University of Michigan, and Environmental Consulting and Technology, Inc. (ECT).

Experts with GSGP and Dr. Adriaens are available for interviews or to answer questions including from organizations that may want to work together toward shared goals.

Mike Scott

Carolyn Artman, MCCI

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SOURCE Great Lakes St. Lawrence Governors & Premiers

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