They're a debt instrument public and private entities issue to finance eco-friendly projects. They're a thriving form of sustainable investment. 

Sustainable finance has become crucial to initiatives on reducing the devastating effects of the climate crisis. One of its most revered instruments are green bonds, a form of eco-friendly financing issued by public and private entities.  

To understand what they are, we must first get to grips with bonds, financial instruments to achieve long-term liquidity that return investors’ money with interest. They're different to other short-term bonds (like government bonds).

Green bonds also set themselves apart through sustainable objectives. They finance projects that help reduce the effects of climate change or protect the environment. They fall under the category of ESG (environmental, social and governance) and can benefit investors by offsetting emissions in proportion to their outlay.

The European Investment Bank (EIB) issued the first green bonds in  2007 in what was a giant leap towards building a responsible banking industry. More investors are now leaning towards green bonds. According to the Climate Bonds Initiative (CBI), in 2020 USD 270 billion (c. EUR 240 billion) were issued in green bonds.

What type of project can green bonds finance?

Ana has recently paid off her mortgage. With less outgoings, she can now save a lot more. She’s contemplated investing some of her savings for quite some time. However, she’s looking for a responsible investment that generates returns while protecting the planet and society. 

After checking her options, she pinpoints green bonds and wants to find out more about the projects her investment could help run. The main uses of green bonds include: 

  • Sustainable mobility: Initiatives to create “clean” transport with less CO2 and other greenhouse gas emissions. Electric cars, bikes and other modes of transport have become perfect alternatives to traditional petrol and diesel-powered vehicles.
  • Energy efficiency: According to the United Nations (UN), household energy consumption accounts for 21% of CO2 emissions worldwide. Household automation is a practical solution to boost our energy efficiency.
  • Waste management: The UN reports that every year, an estimated 11.2 billion tonnes of solid waste is collected worldwide. In recent years, the collaborative economy and other innovative ideas have given a second chance to items we were thinking of throwing away. 
  • Sustainable infrastructure: Many organizations have been working hard to be more eco-friendly, doing things like powering machinery with renewable energy and sourcing biodegradable materials. 

By investing in green bonds, Ana will be doing her part to help achieve UN Sustainable Development Goals (SDGs) 6 (“clean water and sanitation”); 7 (“affordable and clean energy”); 11 ("sustainable cities and communities"); and 13 (“climate action”). 

You might like