GREEN BOND AND ITS POPULARITY

 

GREEN BOND AND ITS POPULARITY

 

Climate change affects developing countries the most. It requires collaboration from everyone, all the countries to control environmental damages and climate change. Since it affects everyone alike, steps are taken to preserve the environment. 

In 2008, Strategic Framework for Development and Climate Change was launched by the World Bank to ensure cooperation from public and private sectors to work towards combating climate change. 

Green Bonds, the first official released by the World Bank in 2009, are utilized to raise money for climate and environmental projects. Funds from fixed-income investors are raised through Green Bonds which are utilized to fund projects that seek to mitigate climate change or work towards the environment. They are issued by an organization as debt security for financing projects that positively contribute to the environment or climate. Green Bonds are becoming popular because investors are opting for socially responsible investing.

As of June 2021, the World Bank has issued approximately $16 billion equivalent in Green Bonds. There are over 185 bonds in 23 currencies (The World Bank, 2021). 

The proceeds of the bond must be utilized for the Green Projects and such projects include 

• Renewable energy
• Energy efficiency
• Pollution prevention and control
• Environmentally sustainable management of living natural resources and land use
• Terrestrial and aquatic biodiversity
• Clean transportation
• Sustainable water and wastewater management
• Climate change adaptation
• Circular economy adapted products
• Production technologies and processes 
• Green buildings (The Green Bond Principles, 2021).

The Green Bond Principles are published with Social Bond Principles, Sustainability Bond Guidelines, and the Sustainability-Linked Bond Principles. This document outlines the best practices or guidelines in issuing the bond.

Investing in Green Bonds comes with several advantages as listed below:

• Tax incentives such as tax exemption and tax credits maybe available depending on the issuer and jurisdiction
• They attract investors as the project would be benefitting the environment and they act as a “certification” that the project would positively affect the environment
• Higher demand lowers the cost to borrow money which reduces the spending for a business. These savings can be given as dividends (The balance, 2021)

Green Bonds have become popular and well sought out currently due to the fact that they help preserve the environment and mitigate climate change. A few main reasons for this popularity include:

• Energy sustainability is a trending topic and agenda and everyone wants to do tasks that are sustainable and eco-friendly
• With the pandemic affecting the economy, green energy goals are popular and much needed (Oil price, 2021)

With countries adopting renewable energy or green energy targets, the popularity of the Green Bonds is increasing rapidly. Moreover, the fact that not only do they provide funds for Green Projects but also help provide tax incentives makes them all the more attractive. As per Nikhil Samundre, founder of Solarmarts believes that Green Bonds would be widely popular in the post-pandemic era as everyone is invested in combating climate change. 

 

 

References

 

Oil price. (2021, July 9). Oil price. Retrieved from https://oilprice.com/Energy/Energy-General/Why-The-Green-Bond-Market-Is-So-Popular-In-2021.html

The balance. (2021, 7 9). the balance. Retrieved from https://www.thebalance.com/what-are-green-bonds-417154

The Green Bond Principles. (2021, July 9). The Green Bond Principles. Retrieved from https://www.icmagroup.org/assets/documents/Sustainable-finance/2021-updates/Green-Bond-Principles-June-2021-140621.pdf

The World Bank. (2021, July 9). The World Bank. Retrieved from https://treasury.worldbank.org/en/about/unit/treasury/ibrd/ibrd-green-bonds