Bangladesh Bank To Invest In Green Bonds
New players and banks are looking to enter the rapidly expanding market of green bonds.
Bangladesh Bank has announced that it plans to invest a part of the country’s foreign exchange reserves in green bonds. According to the Climate Bonds Network, Bangladesh Bank will be the first national bank to use foreign exchange reserves for investment in green bonds.
While the bank officials have not given a definitive investment figure, they have indicated their investment preference.
Bank Governor Atiur Rahman stated that smaller clean energy and adaptation projects in the least developed countries usually fail to attract large-scale investments. One of the possible reasons for this is the comparatively large per-unit investment required in least developed countries. A number of these countries lack basic infrastructure such as power transmission lines or roads that are essential for setting up power projects. Thus, a project developer may have to invest in the development of this basic infrastructure in addition to the project itself, ultimately affecting the return.
Rehman also stated that while investors including pension funds and life insurance companies continue to be the leading investors, he urged sovereign funds and multilateral development funds — like the recently proposed BRICS infrastructure fund — to also invest in green bonds.
2015 could be a significant year in the global green bonds market. Several new entrants have successfully raised billions of dollars through green bonds. Banks in India, China, Japan, and several other countries have tapped the green bonds market with overwhelming response. The total green bonds issuance is expected to cross $40 billion this year. By mid-October, the total issuance had already crossed $36 billion, according to the Climate Bonds Initiative.
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This news could be the start of something very big. China for instance holds $3.5 trillion in foreign exchange reserves, including high-grade bonds as well as US Treasuries. A quite modest shift by central banks worldwide would represent a massive boost to the green bonds market.
It could well work. Typical renewable energy assets are extremely safe: they have a known and quite long minimum life, matching the 25/30 life of typical bonds; they generate a steady income (often locked in by PPA contracts); have low and predictable operating costs; and face zero risk from fuel price fluctuations.