Deutsche Bank AG said it's working to boost its investment in green bonds to €1-billion ($1.4-billion Canadian), joining competitors including Citigroup Inc. and Barclays PLC in tapping profit from the quickly growing market.
The Frankfurt-based institution has invested €200-million in green bonds and intends to expand that starting with purchases of a 10-year issue from the World Bank, according to a statement from Deutsche Bank on Friday. The funds are for the bank's liquidity reserves.
The decision adds to evidence that the green bond market is blooming after issuances of securities linked to climate projects more than doubled to a record $38.8-billion (U.S.) last year, according to data compiled by Bloomberg. The securities are earning "attractive returns," said Alexander von zur Muehlen, the bank's group treasurer.
"The Green Bond market has matured during 2014, and the size and number of offerings has substantially increased making green securities viable and prudent liquidity buffer investments," von zur Muehlen said in the statement.
Investors are snapping up bonds to finance the global expansion of clean energy, promoted by governments from the U.S. to China to tackle climate change. The debt, issued by development banks or by project sponsors themselves, offers investors an alternative to volatile equities.
It's also increasing the flow of cash for clean-energy developments in nations from Spain to Romania, which have reined in support for the industry. Investment in clean energy rose 16 per cent last year to a record $310-billion, according to Bloomberg New Energy Finance.
KfW Group, Germany's state-owned development bank, sold $1.5-billion of green bonds in the U.S. in 2014 after receiving demand for $2.5-billion of the securities.
Deutsche Bank ranked eighth in terms of underwriting green bond deals last year, trailing Skandinaviska Enskilda Banken AB, Bank of America Corp. and Crédit Agricole SA, according to Bloomberg data. Investors included BlackRock Inc. and Calvert Investment Management have bought the securities.
Deutsche Bank's goal is cautious compared with other banks. On Wednesday, Citigroup said it would lend, invest and facilitate deals worth $100-billion by 2025 to support projects that will fight climate change and protect the environment. Bank of America said in 2012 it would support $50-billion in deals for low-carbon initiatives, and Goldman Sachs Group Inc. announced a $40-billion program the same year.
For Deutsche Bank, the securities will be held as part of its liquidity reserve investments. Growth will be focused on new primary market investments in eligible sovereign, supranational and agency issued bonds, it said.
A coalition of banks that include Bank of America, JPMorgan Chase & Co. and Crédit Agricole created a common set of criteria for green bonds in January 2014 to act as a catalyst for the development of the market.
Citigroup's $100-billion ambition builds on an earlier goal to arrange $50-billion in deals that the bank set for itself in 2007 and achieved in 2013, three years ahead of schedule.
"Simply put, it is a $100-billion investment in sustainable growth," chief executive officer Michael Corbat said in a speech on Wednesday in New York. "These efforts do not constitute philanthropy, nor do they represent costs. In fact, they reduce costs."