Blog post

What on Earth are Green Bonds?

24th July 2022

What on earth are green bonds you ask? Well, a green bond is a fixed-income instrument designed specifically to support climate-related or environmental projects that benefit the Earth!

They differ from conventional bonds in the way that the capital raised from the issue of these bonds is then used or allocated. 

Green bonds use the capital exclusively towards financing or refinancing ‘green’ projects, such as the development of renewable energy, sustainable technology, energy efficiency, pollution reduction, sustainable farming and forestry practices, clean transportation, water management, conservation and supporting the movement against climate change.

In order to qualify for a green status, green bonds must first go through a verification process by a third party which certifies that the bond will fund projects that include benefits to the environment.

 

How do you invest in them, and receive a return?

In the same way that Corporate or Government Bonds work, borrowers issue these securities to raise money for specific projects. The bond is issued for a fixed period of time and a coupon rate (interest) is generally payable on the maturity date.

In the case of green bonds, the borrowers' issue these securities to be able to secure financing for projects that will have a positive environmental impact. Investors can expect to make a profit when the bond matures, but they also get the benefit of knowing that their money is being used to support projects designed to create a positive impact on the environment.

 

What are some of the Other Advantages of Green bonds?

One advantage of green bonds, over traditional bonds, is that they often come with tax incentives which makes them more attractive to investors. These incentives are often in the form of a tax exemption or tax credits and are designed as an incentive to encourage and reward an investor for investing in projects that support our environment.

 

What’s the difference between Sustainable Bonds, Climate Bonds, Blue Bonds & Green Bonds?

The terms "green bonds", “sustainable bonds” and "climate bonds" are sometimes used interchangeably but don’t necessarily mean the same thing.

Green bonds are an all-encompassing term that refers to investment bonds that have been certified to fund projects that support the climate and environment.

Sustainable bonds are similar in that they are investment bonds that are issued to raise capital to fund sustainability-focused projects.

Climate bonds refer to bonds that fund projects focusing on reducing carbon emissions or alleviating the effects of climate change, while bonds that fund water-related environmental projects to protect the ocean and its ecosystems are often referred to as blue bonds. Projects such as wastewater treatment, protection of coral reefs, reduction of pollution and removal of plastic waste in our oceans are typically funded by blue bonds.

When you invest with Blossom, you buy units in the Blossom Fund, which is a diversified portfolio of financial assets, such as bonds. The Blossom Fund invests ethically. No coal, no oil, no dirty investments…because your money can do good as it grows. Want to find out more about your investments, click here. When you save with Blossom, you're helping to do your part in making the world a better place!