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Finance

The Road to Investing Green is Lined with Trees

Lukasz Szmigiel

$266.5 billion in 2019; $269.5 billion in 2020 – let that sink in. 

With global issuances of green bonds on a steep rise year after year — crossing the cumulative $1 trillion mark in December — it’s no wonder that trading platforms like MarketAxess are placing increasing emphasis on these financial instruments. MarketAxess ranks as the largest Green Bond marketplace in the United States. More than 1,800 firms use MarketAxess’s Open Trading Marketplace, an electronic platform for the trading of all different types of fixed-income securities. However, green bonds, which are used to fund projects that have positive environmental benefits, are where the platform shines. Last year, MarketAxess launched a program called Trading for Trees, which simultaneously promotes and incentivizes the exchanges of green bonds on their site. A little over a year later, they have released their remarkable results. 

On January 1, 2020, MarketAxess launched Trading for Trees, which guarantees that five trees will be planted in the Amazon, Australia, or other important areas for every $1 million in green bond trades completed via the platform; clients participating in these trades receive green credits in return. The program is a partnership with One Tree Planted, and it costs the environmental charity about $1 to plant each tree. The clear benefits of a world with more trees makes it easy to see why this would serve as motivation for MarketAxess’s clients – through discharging oxygen, decreasing risks of water-related disasters, serving as natural habitats for 80 percent of land-based life, providing jobs to at least 1.6 billion people, and absorbing carbon that would otherwise end up in the atmosphere – trees are vital to environmental health and stability. 

While Trading for Trees encourages an active market for green bonds, MarketAxess has also launched initiatives that make it easier for electronic trading to occur, including:  

  • Marking green bonds 
  • Developing a watchlist for clients about new green market activity 
  • ‘Like Bonds’ tool on conventional bonds to search for corresponding green variations
  • Smart Dealer Select tool to search for dealers and issuers of green bonds 

Combined, these functionalities enable traders to react with enhanced speed when new climate-focused instruments are issued and to boost the environmental friendliness of their portfolios. Hopefully, the green bond market can then become more liquid and start catching up to the trillions of dollars worth of activity in the broader world of bonds. As Bonnie Wongtrakool, global head of ESG investments at Western Asset Management, told the Wall Street Journal, “We’d be supportive of anything that provides liquidity and transparency into what is a green bond and what is not. Liquidity is king.” This is exactly the gap that MarketAxess sought to fill.
On March 15, MarketAxess updated the world on its progress. Over the course of 2020, clients traded $27 billion in green bonds on their platform, marking a 42 percent spike above 2019 and giving the platform an estimated 20.3 percent market share in trades of green bonds. These efforts resulted in more than 134,000 trees being planted, surpassing original expectations. Chris Concannon, President, and COO of MarketAxess reflected on the year’s triumphs: “We are delighted with the success of the Trading for Trees program. It shows that every small step we take to make trading ESG-linked instruments like green bonds easier and more effective can have a big impact in the real world. As demand for sustainable and green investment strategies increases, MarketAxess is committed to further developing the trading technologies and tools to support and incentivize them.” For those eager to climb into the action, the Trading for Trees program will continue throughout 2021 and will be supplemented with a number of forums for traders, fund managers, and firms excited about green bond trading to discuss the road ahead.

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