Green bonds are the newest type of bond, first issued by the European Investment Bank in 2007. Although 15 years have passed since then, the market is still new compared to traditional bonds. The green bond market is expected to exceed the $1.5 trillion mark This year. Investors must have an in-depth knowledge of the market landscape to follow and take advantage of this rapidly growing market. In this article, we’ll talk about the types of green bonds, who can issue them, and how to choose green bonds.
What are green bonds?
Green bonds work on the same principle as traditional bonds. The big difference with other bonds: the funds obtained via green bonds must go to environmental projects. Reforestation, ecosystem restoration and sustainable agriculture projects can be qualified as green bonds.
Governments and public and private organizations can issue green bonds. The most common type of green bond is corporate green bonds.
However, not all so-called green bonds are created equal. Reputable organizations that offer green bonds, such as the DGB Group, are certified through third-party standards.
What are green bonds used for?
Green bonds help investors make money while making our planet greener and more sustainable. Businesses large and small and governments are increasingly aware of how economic development affects the environment. With a top-down approach like the Paris Agreement, 77 countries and 170 companies have pledged to reduce their carbon footprint to zero.
Netflix, Amazon, Shell, China, Singapore, Australia and many more are among them.
While these goals are exciting for our sustainable future, they also create significant demand for sustainable projects. The green bond market has grown to meet this demand. According to current information, the green bond market will reach $5 trillion by 2025.
Types of Green Bonds
There are four types of green bonds based on their financial structure.
Green Bond “Use of Proceeds” – asset-backed, similar to traditional bonds.
Green Revenue Bond “Use of Proceeds” – secured by revenue-generating projects
Green project bond – secured by a project’s assets and balance sheet
Securitized green bond – backed by a larger pool of assets
There are also different types of green bonds depending on the areas they improve:
Sustainable land use, including forestry and agriculture
Energy efficiency and building efficiency
Sustainable waste management
Why are green bonds so attractive to investors?
Along with growing demand, green bonds help you put your money where your values are. It brings a sense of satisfaction about the role you and your business play in shaping the kind of future you want to leave for the next generation.
Green bonds can be attractive in terms of taxation. Some green bonds are tax exempt. This means that investors do not pay taxes on their income from green bonds. However, there are also green bonds that qualify for tax credits.
Another essential aspect to consider while investing in inflation. You have the option to choose from green bonds that protect investors from inflation. For example, earlier this year, France introduced a 15-year inflation-linked bond.
What makes a bond green?
Even though green bonds seem attractive, they often receive criticism for the lack of measurement and transparency and the possibility of greenwashing. This is a legitimate concern, given that the market is still growing and not as mature as the traditional bond market.
There are a few things investors should do to invest in quality green bonds that bring both profit and fulfillment. First and foremost, investors should seek third-party verification and reporting from the green bond issuer. These are internationally recognized verification standards, such as the Gold Standard, Verra’s Verified Carbon Standard (VCS), Social Carbon and Climate, Community and Biodiversity Standards (CCBS) or standards verified by the UNFCCC.
What are examples of green bonds?
There are international organizations, such as the World Bank, and governments that offer green bonds. Another example of reliable green bonds are DGB green bonds. We are the only publicly listed company in the field of nature conservation. Our business model allows us to start and scale nature conservation projects with high quality and returns.
Unlike non-profit organizations, we are legally required to provide detailed reports to our investors. We offer full transparency to our shareholders. Our team members work alongside local partners and farmers on the project site.
Our investors can choose from already existing projects that have passed third-party verification. Additionally, DGB projects contribute to at least 3 of the United Nations Sustainable Development Goals. Our projects improve health, create better educational opportunities, improve wildlife conservation, and even build sustainable communities.
Potential investors can check on a day-to-day basis what is happening in nature restoration and reforestation projects. They can know all the details of the projects, including our experts, numbers, reports, type of trees and current progress.
We offer more than a bright vision of the future. Our potential investors make decisions based on the tangible and quantifiable results of existing projects.
DGB’s green bonds allow investors to have the best of both worlds: profit and impact.
It is a forward-looking way to diversify investment portfolios and contribute to a more sustainable and green nature. For investors who like this approach, our experts can provide 360° insights into our green bonds and nature-friendly projects.