Green bonds innovative new tool to raise capital for landscape initiatives
Green bonds offer a potential new instrument to raise capital for landscape initiatives, a new report by IUCN NL in cooperation with the Netherlands Enterprise Agency (RVO) reveals. “The key to issuing a green bond for landscapes is to involve the right stakeholders,” said Gerhard Mulder, senior expert Green Economy at IUCN NL. “In particular, an investment grade financial institution should be involved.”
Bonds are debt instruments allowing banks to trade loans. As fixed income investments, they allow businesses and governments to raise money for projects by borrowing from investors who receive interest in exchange. Like stocks, they are typically traded on exchanges.
Create scale and involve investment grade institution
Landscape initiatives can take steps to increase the likelihood of being able to issue green bonds, shows the report, titled 'Green Bonds and Integrated Landscape Management - Options for Innovative Financing of Landscape Initiatives'.
First of all, green bonds must be a minimum of $ 250 million (and preferably $ 500 million or more). A portfolio of projects that is developed in a landscape context is unlikely to achieve investment scale easily. However, projects can be bundled to achieve this scale.
Secondly, an investment grade or public financial institution should be involved in an early stage to structure the transaction. Investors will only invest in green bonds that are issued by investment grade entities: in most cases this is either a government or a (public) bank. The government or bank will then finance or lend to individual projects.
Landscape initiatives can learn from how water boards are organised in the Netherlands. Water boards are democratically elected bodies, have the power to raise taxes and they can rely on the Nederlandse Waterschapsbank, an AAA-rated public bank, to raise capital. Dutch water boards are highly institutionalised, enabling them to attract capital at scale. Landscape initiatives that are less institutionalised need to work with governments and other stakeholders to strengthen their capacity if they want to issue green bonds.