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Green Bonds – A Fresh Investment Perspective

Green Bonds - A Fresh Investment Perspective

Published on Jul 25, 2019

Being an investor in this Gen-Z era, you probably want to explore the impact investment horizon; more specifically investing in Green Bonds. And why not – it’s modern financing, it’s innovative, emerging, and it’s the “feel good” way of earning. It allows you to take care of being socially responsible and environmentally savvy while investing. This is the right time to get into “ESG”; Environment, Social, and Governance investing.

What are green bonds?

As innovative financial instruments, green bonds provide an opportunity to tap into new pools of private capital to finance green projects.

These are revolutionary emerging financial instruments that give a fresh prospect to get into private funding. The issuers of green bonds can be commercial and development banks, municipalities, and national governments, whereas the buyers can be corporations, pension funds, and so on.

How do they work?

Green bond proceeds are specifically earmarked to be used for climate and environmental projects. These fall under the category of fixed income financial instruments. The investors of green bonds receive fixed income in the form of interest, while the issuer gets the capital to finance green projects. The principal is repaid upon maturity – much like any other bond.

What is “green” in green bonds & other features?

In order to obtain the green bond status, these are often verified by a third party such as the Climate Bond Standard Board, which certifies that the bond will fund projects that are beneficial to the environment. The certification is earned during the underwriting process.

The “green” part of green bonds refers to the environmental projects in which the proceeds go to – such as sustainable water management projects, waste management/pollution control projects, and renewable energy projects. Most of them come with tax incentives such as tax exemptions or tax credits. As an individual, one can invest in green bonds through ETFs and have that “responsible investment” ticked marked for you.

The issuers of green bonds benefit as well as the stock price of the issuer increases when the green bond offering is announced. The “green” factor helps to attract younger investors, which contributes to the shareholder value. These younger investors are beneficial as the issuers can profit from as having a new set of investors.

Green bonds & the future

If we talk about whether the idea is growing, one can say that it’s getting there, slowly but surely. However, investors should be watchful while investing in green bonds. Being a relatively new form of investment, this has a relatively smaller market base and there is less awareness among investors about this option and the way green bonds and its market operate.

The 5 Biggest Certified Green Bonds Are As Follows:

  • ING Groep N.V: USD 3.0 billion November 2018: Solar, Marine Renewables (offshore wind), Low Carbon Buildings
  • New York MTA: USD 2.17 billion December 2017: Low Carbon Transport
  • Industrial & Commercial Bank of China (ICBC), Luxembourg: USD 2.14 billion October 2017 Solar, Wind, Low Carbon Transport
  • DNB Boligkredditt, Norway: USD 1.77 billion June 2018: Residential Buildings
  • China Development Bank: USD 1.62 billion November 2017: Low Carbon Transport, Wind, Water Infrastructure[2]

If we look at how it began, the World Bank issued the first green bond in 2008. Since then, they have come a long way. This year, so far, companies and local governments across the globe have sold bonds worth about $89 billion to fund projects that are good for the environment.

The current run rate will put global non-asset-backed green bond issuance at more than $182 billion for the year, which would easily top 2018’s $133 billion and 2017’s $128 billion.[3] In recent years, companies such as Apple, Unilever, and Bank of America have issued green bonds.[4] Various reports and studies have shown a positive inclination for the boom of green bonds. It is just a matter of time, so don’t be afraid to invest in green bonds to sweeten up the kitty.

If you’d like to know more…