Among the world’s fastest-growing investment products are green bonds used to finance environmental initiatives. Bloomberg estimates that global green bond sales will reach $1 trillion this year after totaling less than $40 billion as recently as 2015. This growth has caught the attention of major corporations – including automotive giant Honda Motor, which recently announced the issuance of its first green bonds.
In early March, the Japanese carmaker issued $2.75 billion in green bonds as part of a broader initiative to become carbon neutral by mid-century. It marked Honda’s first foray into green bonds and came only a few months after rival Ford Motor sold $2.5 billion worth of green bonds, the largest ever such offering by a U.S. corporation.
Both companies plan to use sustainable finance to lower their carbon footprints, including phasing out gas-powered cars and speeding the transition to electric vehicles.
Honda sold its dollar-denominated green bonds in three parts. Bloomberg reported that the longest portion is 10-year security, which yields 1.12 percentage points above Treasuries. JPMorgan Chase, Bank of America, Citigroup, and Morgan Stanley managed the bond sale.
Honda will use the money to fund a variety of sustainability projects. In addition to its continued development of electric cars, it will invest in renewable energy sources and recycled used-vehicle parts. In a press release, the company said it aims to attain net-zero CO2 emissions across all products and corporate activities by 2050.
“By allocating the proceeds from the issuance of the green bonds to eligible green projects, including the development of zero-emission vehicles such as EVs and FCVs (fuel cell vehicles), Honda will further accelerate its initiatives toward the realization of a society that aims for zero environmental impact,” the company said.
Honda is part of many corporations turning to green bonds to finance environmental initiatives. Like Honda, Ford aims to become carbon neutral no later than 2050. A big chunk of the funds’ Ford raised through green bonds will go toward expanding EV technology and charging infrastructure.
“We’re again putting our money where our mouth is, prioritizing and allocating capital to environmental and social initiatives that are good for people, good for the planet, and good for Ford,” Ford Chief Financial Officer John Lawler said in a November statement following the Detroit automaker’s green bond announcement.
Global green bond sales hit a record $513 billion last year, more than doubling the total in 2020. Bloomberg estimates that sales are expected to double again this year to about $1 trillion and reach $5 trillion in 2025.
The global auto industry, under mounting pressure from both governments and shareholders to transition to EVs, is expected to become an even bigger player in the green bond market.
Honda was Japan’s first automaker to publicly announce plans to phase out sales of gasoline-powered cars completely, which it intends to do by 2040. The company expects 40% of its global sales from electric and fuel-cell vehicles by 2030, followed by 80% in 2035 and 100% five years later.
Other automakers with plans to phase out gas-powered cars by 2040 include Ford, Mercedes-Benz, General Motors, and Volvo. Meanwhile, 30 national governments pledged to work toward phasing out sales of new gas- and diesel-powered vehicles by 2040.
