Facts You Need To Know About Green Bonds in 2022

Photo by Red Zeppelin on Unsplash

What are Green Bonds?

According to the Green Bond Principles, green bonds are just like traditional bonds but with a more specific objective to finance environmental projects. It may be for renewable energy production, research and development on improving biodiversity, implementing waste management initiatives, and exploring clean water technologies as some examples.

#1 The world’s first green bond was issued in 2007 by the European Investment Bank.

Climate Awareness Bond, the name of the world’s first green bond, was a 5-year green bond dedicated to renewable energy (e.g. solar, wind, hydro, geothermal) and energy efficiency (e.g. building insulation, cogeneration, equipment replacement) projects. It was offered to the 27 member states of the EU from May 29 to June 22, 2007, with a minimum of 5% return on its maturity date (June 2012).

#2 Green bond issuance is a voluntary process.

There are standards on the process of issuing green bonds. However, the process is voluntary. Therefore, green bond issuers are not obliged to report on how their raised capital was spent. Investors should not take things as they are. Just because it says it’s a green bond doesn’t assure that they’ll use it for environmental objectives. Still, due diligence is important.

“The Green Bond Principles (GBP) are voluntary process guidelines that recommend transparency and disclosure and promote integrity in the development of the Green Bond market by clarifying the approach for issuance of a Green Bond.” — Green Bond Principles (June 2021)

These guidelines were developed in 2014 by financial institutions such as banks and several other bond issuers. The leading organization responsible for this framework is the International Finance Corporation (IFC). IFC also has issued green bonds. In 2020, it has issued 172 bonds in 20 currencies worth over $10 billion.

#3 Climate Bonds Standard and Certification

When you see that the green bond is “climate bond certified”, that means that the issuer has undergone pre-issuance and post-issuance requirements.

#4 The United States has the most issued green bonds in the world.

Source: Climate Bonds Initiative
Source: Climate Bonds Initiative

#5 The majority of green bond proceeds around the world go to renewable energy & efficiency objectives.

According to The World Bank Impact Report 2020, the top 3 sectors that benefit from green bonds are renewable energy & efficiency (36%), clean transportation (27%), and agriculture, land use, forests & ecological resources (15%). Other sectors are shown in the graph below.

Source: Climate Bonds Initiative

A 2019 study revealed that there’s almost no difference in the yield between non-green and green bonds

Greenium is a term that refers to the yield difference between a green bond and a non-green bond of similar characteristics. In a 2019 study conducted by the Graduate School of Business Stanford University, their primary result is zero greenium.

Screenshot taken from CFA Institute

Investing in Green Bonds

Including green bonds in your investment portfolio helps you hedge against environmental-related financial risks. There are several exchange-traded funds (ETFs) and mutual funds where small investors can buy green bonds.



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Roman Reitman

Roman Reitman

Proficient Investor concentrated on ethical investments and green technologies.