Green bonds imply an investment with a positive ecological impact.
Green bonds are a debt instrument that allows obtaining funds to finance initiatives or projects that contribute to environmental sustainability . Its creation took place in 2007 , when the European Investment Bank ( EIB ) made the first issue.
It should be noted that green bonds can be issued by private companies or public entities. For a bond to be classified in this way, it must comply with the so-called Green Bond Principles , which establish the requirements and function as guidelines.
Characteristics of green bonds
To understand what green bonds are, it is useful to analyze the two terms that make up the concept. A bond is a financial tool that promises the return of principal plus interest over a certain period of time. It is a fixed income instrument that constitutes a contract that can be bought and sold and with which the investor becomes a creditor of the issuing entity.
The bond, therefore, works like a loan : whoever buys the bond lends the money to the entity that issues the bond, which then returns it on the bond's maturity date, adding the corresponding interest (which makes up what It is known as a coupon .
Green , meanwhile, is a word that in this case is used as an adjective to refer to something or someone who is environmentalist: who promotes environmentalism. Environmentalism , in turn, is called the doctrine or movement that favors the care of the planet and nature.
What differentiates green bonds from other bonds is that the money received by the issuer must necessarily be allocated to ventures or actions that contribute to the preservation of the environment or to mitigate the effects of climate change . These ecological projects can be linked to the adoption of renewable energy, the reduction of carbon emissions, waste management, water conservation and any other measure that cooperates with sustainable development.
For the investor (that is, who buys the green bonds), the operation is a way to obtain returns on their savings and simultaneously contribute to achieving the Sustainable Development Goals ( SDG ) defined by the United Nations ( UN) . ). That is why it is stated that it implies the realization of responsible investment in the capital market.
The carbon footprint can be mitigated through green bonds.
Requirements for issuance
It should be considered that indicating what use will be given to the funds is not enough: the organization that undertakes the bond issue has to explain precisely how it will execute its project and how it will manage the funds, guaranteeing transparency and allowing control by the of an auditor.
Within this framework, the organization has the obligation to disclose financial information to both investors and rating agencies and supervisory authorities. On the other hand, it must designate investment banks as underwriters to ensure compliance with the rules and access technical information on the bond market.
Green bonds contribute to the generation and application of clean technology.
Use of green bond funds
The Green Bond Principles , agreed upon by a group of banks, indicate that the funds obtained through this instrument must be used to finance projects that generate clear environmental benefits that can be measured and evaluated . In this sense, a series of categories were established that are not exhaustive.
Thus, it is detailed that the money obtained through green bonds can be used in initiatives linked to energy efficiency , pollution control , sustainable transportation and the protection of biodiversity , to mention a few possibilities.
It is interesting to mention that there are other bonds linked to sustainable finance that also seek a positive environmental or social impact. Among them are blue bonds , which were issued for the first time in 2016 and are aimed at caring for marine ecosystems.
Entities such as BYME (Bolsas y Mercados Argentinos) , also recognize other bonds that obey responsible investment principles ( PRI ). Social bonds mobilize funds that help solve or mitigate a problem of a community or population group, while sustainable bonds combine characteristics and objectives of green bonds and social bonds.
Funded projects
Projects financed with green bonds continue to grow in many countries. In Spain , Iberdrola became the first company in the country to issue this type of instrument in 2014 . The company has financed the Baltic Eagle and Saint-Brieuc offshore wind farms thanks to this resource, for example.
In Argentina , the Municipality of the City of Mendoza issued a green bond to finance the installation of modules that will allow it to generate photovoltaic energy within the framework of an energy transition plan. The Dominican Republic also opted to issue green bonds to promote the development of a clean public transportation network , improve sanitation systems and conserve protected marine areas, among other issues.
Another example of projects financed with green bonds involves Comcast . The American multimedia is carrying out various measures to become carbon neutral by 2035 , betting on the use of renewable energy and the development of ecological buildings.