The government is aiming for a greener economy. Companies and organizations are trying to support their production with green resources. Green economy, green bonds, green businesses and going green have become the current anthem around the world! We know what green economy and green businesses mean, but since I was unaware of “green bonds” initially, so will many of you. So, today with the help of this article let us understand the term.
Green Bonds: In simple language, these are bonds issued by the government and not taxable. These bonds are used for underdeveloped localities mainly by municipalities or federally qualified organizations. The objective of these bonds is to finance projects aimed at achieving energy efficiency, the protection of aquatic and terrestrial species, the reduction of pollution, the management of the quality and quantity of water and clean transport. , to name a few. Due to its tax-exempt status, purchasing this bond represents a lucrative investment compared to a taxable bond. This tax-exempt status acts as a financial incentive to address social issues such as the conservation of energy sources and climate change.
To qualify for a green bond, one must:
1. The building is at least 20 acres in size
2. The project will receive a minimum of $5 million from the state or municipality
3. A minimum of 75% of the building is registered for Leadership in Energy and Environmental Design (LEED, a rating system developed to measure the environmental impact of the building).
Some advantages of green bonds are:
Reduced project cost: These bonds are an excellent system for saving a large amount of capital to support environmental investment. Ideal for large-scale green projects such as solar and wind development that require capital investment before revenue and generate modest revenue over a long period.
Investor demands: Due to the growing awareness of a green financial market, there is a constant demand for socially responsible investment projects. Due to this scenario, investors are showing strong interest in buying green bonds. While retail investors seek investments through their brokers and fund managers, institutional investors use these bonds to manage social, economic and government mandates. Before green bonds came on the scene, it was difficult to meet these mandates with fixed income tools. This is why these bonds have been successful in attracting new investors, thus providing a new platform for future issuances.
Build brand equity: As the government is the primary provider of these bonds, it seizes the opportunity and presents itself as innovative and determined to keep pace with green projects.
Leadership: Speaking of the future, green bond issuers are the world leaders. With their active participation, they can encourage municipalities to participate and create a reputation for monetary innovation. This will make way for future projects in the financing of environmental projects.
Sharing the moment when efforts are being made to preserve the environment, green bonds are a whole new opportunity for investors and issuers. Apart from the advantages mentioned above, green bonds are known for several other advantages over other financing options, some of which are:
To provide a way to access sustainable investments in a bond market in a familiar, low-risk environment.
Allow municipalities to develop a public-private partnership to accelerate the process of energy efficiency and technological advancement.