What are green bonds?
Green bonds are fixed income instruments where the proceeds are exclusively applied towards new and existing green projects. These projects need to have clear environmental benefits such as renewable energy, green buildings, wastewater management, energy efficiency, and public transport.
Companies that issue green bonds are signing themselves up to a bit more than a regular or ‘vanilla’ bond. They commit themselves to additional requirements such as reporting environmental metrics, so we know what impacts the green bonds are achieving.
Green bonds can help mitigate climate risk with environmental projects that have climate benefits and signal positive movement towards net zero alignment.
It’s not just companies that are involved in green bonds, however. Many governments, including our own, are increasingly issuing green bonds to fund climate and environmental programmes.
Since the first green bond was issued by the European Investment Bank in 2007, they have become increasingly prominent, with more than US$1.6 trillion issued to date.