Green bonds: A simple approach to understanding it.
To understand what green bonds are, it is essential to first refresh what bonds mean for those that have the idea and to those who are not sure what the term really means, now is the time to get a clear picture.
Bonds are pretty easy to understand. Bonds are debt securities. For example, a new company is about to start up and need to raise funds to kick start the business, it can issue a bond to the public, any interested persons can buy the bonds and a return is provided over a fixed period of time with a fixed interest rate on the value of the bond.
Are you wondering how bonds are different from stocks?
Though similar, bonds and stocks are quite different. Stock returns are given in terms of ownership of the company and the returns are based on the performance of the company, while bonds are in more like debts paid back to the investor with a fixed interest after a given time.
What then are green bonds?
Green bonds are bonds raised for companies or projects that support environment or climate related projects. Green bonds caters for sustainable and responsible investors (SRI) . These are people who only do not want to invest money but invest in projects that are focused on climate, environment and sustainable development.
Green bonds only just became popular and to clearly define what they stand for, a group of banks came up with the Green Bond principles. These principles recognizes several broad categories of potential eligible projects which span across Renewable energy, energy efficiency, sustainable waste management, sustainable land use, biodiversity conservation, clean transportation, sustainable water management and climate change adaptation.
Are there any green bonds out there to follow up with?
Oh yes, several countries have and financial institutions have issues multi million dollar green bonds in the past decade. The African Development bank, the World bank, the Government of British Columbia in Canada, the City of Johannesburg, the state of Massachusetts etc.
Many of the common green bonds span a period of 10–20 years. Thinking of where to invest that money on a long term? Consider green bonds?