The pandemic is driving a boom in investments to fix the climate crisis

Green bonds may have a starring role in the recovery from the coronavirus recession.

Interest in green bonds has increased in recent months as investors seek out securities that can generate returns and help the environment at the same time. Governments are offering green bonds to help meet ambitious climate goals, and companies are using them to reduce the impact of their business on the environment.

Green bonds are similar to traditional fixed-income securities, but the money they raise must be spent on climate, environment or renewable energy products. The bonds first arrived on Wall Street in 2007, but the coronavirus pandemic has led to a new surge in interest.

An American flag is placed on a fence outside of the U.S. Capitol building on September 28, 2020 in Washington, DC. This week Seventh U.S. Circuit Court Judge Amy Coney Barrett, U.S. President Donald Trump's nominee to the Supreme Court, will begin meeting with Senators as she seeks to be confirmed before the presidential election. (Photo by Al Drago/Getty Images)

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Governments around the world are including environmental projects in their coronavirus recovery plans, which need to be financed by taking on enormous amounts of new debt. At the same time, the upheaval caused by the pandemic is encouraging companies to intensify their focus on addressing societal and environmental issues.

“While financings related to pandemic response efforts will subside as the worst of the crisis fades, an enduring focus on environmental and social issues will continue to prompt public and private sector issuers alike to consider issuing debt instruments tied to specific sustainable projects,” Moody’s Investors Service said in an August report.

The value of green bonds issued in the first nine months of 2020 surged 12% over the previous year to more than $200 billion, according to research company BloombergNEF.

Green bonds are the perfect tool to help the global economy recover in a sustainable way, according to James Tanner, an associate at law firm Baker McKenzie.

“The Covid crisis has given the world a unique pause button moment,” he said. “Investors around the world … have indicated that in the restart their focus will be on investing in a sustainable fashion.”

A community of forest homes lies in ruins along Auberry Road in the Meadow Lakes area after the Creek Fire swept through on September 8, 2020 near Shaver Lake, California. California Gov. Gavin Newsom has declared a state of emergency in five California counties after record heatwave temperatures fueled numerous wildfires over the Labor Day weekend. The state of emergency applies to Fresno, Madera and Mariposa, San Bernardino and San Diego counties. (Photo by David McNew/Getty Images)

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The European Union and Volkswagen are among the most recent adopters.

European Commission President Ursula Von der Leyen announced in September that 30% of the bloc’s €750 billion ($882 billion) coronavirus recovery package would be raised via green bonds.

Volkswagen (VLKAF) offered its first green bonds the same month, raising €2 billion ($2.4 billion) to fund the development of its new platform for electric vehicles and two new models.

Chief financial officer Frank Witter said in a statement that the carmaker plans to issue more green bonds in the future.

“With the issuance of our first green bonds, we are giving investors the opportunity to make sustainable investments in the future of e-mobility. It is a strategic milestone in our financing strategy,” he said.

The largest single offering so far this year came from the German government, which issued a €6.5 billion ($7.7 billion) green bond in September.

Interest in green bonds will continue to grow as the market matures and rules governing the securities are standardized, according to Moody’s.

“The pandemic will intensify the focus of companies, investors and other stakeholders on [environmental, social and governance] factors,” Moody’s said in its report.

With more than $1 trillion in green bonds sold since 2007, according to BloombergNEF, concerns have been raised about whether the bonds are more about marketing than helping the environment.

But Tanner said that cases of “greenwashing” are “few and far between” and investors shouldn’t be too pessimistic about their potential.