Green bonds have exploded in popularity over the past five years, growing from $3 billion to $81 billion from 2012 to 2016.[1] Green bonds are issued by governments, companies, and multilateral institutions to finance environmentally friendly projects and products. In 2014, Toyota Financial Services issued the auto industry’s first green bond, which raised money to fund consumer loans and leases for environmentally friendly vehicles, such as hybrid cars. By increasing the financing that Toyota can provide to buyers, the bonds help make environmentally friendly vehicles more accessible to consumers.
Toyota’s green bonds are structured as asset-backed securities, where Toyota sells rights to the income streams of a bundle of outstanding loans. This provides Toyota cash more quickly than if it waited for the loans to mature, which allows it to extend more loans for green vehicles. Asset-backed auto bonds may have the additional advantage of recession protection, as they maintained performance during the Great Recession while securities backed by home loans plummeted.[2]
In 2016, Toyota issued its third green bond, bringing the total raised over three issuances to $4.6 billion. The company estimates that the hybrid technology that these bonds help customers access has helped save more than 5.8 billion gallons of gasoline worldwide since 1997, resulting in 58 million fewer tons of CO2 emissions.[3]
Resources
[1] https://www.wsj.com/articles/investors-warm-to-green-bonds-1491790201
[2] https://www.forbes.com/sites/jimhenry/2014/03/31/toyota-financial-services-claims-the-industrys-first-green-bond/#743e69076d23
[3] http://corporatenews.pressroom.toyota.com/releases/tfs-environmental-green-bond-expansion-may13.htm
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