Zurich Insurance Group, Switzerland’s biggest insurer, intends to double its planned investments in green bonds, according to Bloomberg.
The 75th biggest publicly traded company in the world as of 2013, Zurich had already intended to invest $1 billion. But now it’s upped that to $2 billion, citing the bonds’ growing appeal in Europe.
“Green bonds are a great example of an investment that allows us to have a positive impact on society and the environment, while meeting our financial criteria,” Zurich’s Chief Investment Officer Cecilia Reyes said in an emailed statement.
Bonds are a type of debt instrument used to finance various projects and long-term investments, often used by governments. The bond issuer receives the money paid for the bond, and in return pays a regular interest rate to the bond purchaser, and eventually pays off the entire bond. Green bonds specifically were first developed by the World Bank in 2008 to fund projects specifically aimed at mitigating and adapting to climate change. They offer a level of risk and returns that’s in line with traditional debt of the same maturity and rating.
Since 2008, the World Bank has raised about $6.3 billion in green bonds in 66 transactions in 17 different currencies. But other firms and institutions have also gotten in on the act, and in 2013 $14 billion in green bonds were issued world wide. That threshold has already been crossed this year, with $16.6 billion issued to date, and Bloomberg New Energy Finance anticipates green bonds could hit $40 billion for 2014 when all is said and done.
All that said, the green bond market is still nascent: even if Zurich hits its $2 billion target, that will still only be one percent of the company’s $200 billion in assets.
In other less climate-friendly news, Zurich decided at the end of June to shutter its climate change office in the United States after six years of operation. The effort had been aimed at encouraging both U.S. policymakers and other members of the insurance industry to begin taking climate change seriously, and to shape policy accordingly. The office’s director, Lindene Patton, who helped write the federal government’s recent National Climate Assessment, was also tasked with developing insurance policies specifically for green goods, services, and projects like hybrid cars and utility-scale use of carbon capture and sequestration.
E&E; News reported those insurance plans may not have been popular enough on the markets to justify the office’s continued existence, and instead those plans will be folded into Zurich’s traditional line of business.
That development suggests the ongoing failure of the U.S. to put a comprehensive price on carbon emissions — and the trouble Europe has had getting its own policies and cap-and-trade system running smoothly — is having a real effect on the markets. Without that price, there is simply no coherent or holistic market signal that there is money to be made by going green. This in turn could explain the failure of Zurich’s green insurance products to achieve lift-off.
A price on carbon emissions would also up the economic benefits of the projects green bonds are meant to finance, making the bonds themselves a more attractive investment. Of course, whether the U.S. puts a price on carbon emissions or not, the risks climate change poses to the country, its economy, people, and infrastructure will only increase in the coming decades.