The green bond market, intended for financing sustainable projects, is experiencing exponential growth, and in 2020 the issuance of these bonds reached $270 billion, according to a report by the World Economic Forum. Encouraging the energy transition in 2023.
Unlike ordinary bonds, funds raised by green bonds are used exclusively for projects with a positive impact on the environment, such as renewable energy sources and green buildings.
The growth of this market is accelerating due to global efforts to reduce carbon emissions, and a milestone was reached in October 2021, when the European Union issued bonds worth 14 billion dollars.
When it comes to the types of green bonds, the most common form is “use of income” bonds, where the collected funds are directed to specific green projects, but are supported by the issuer’s overall balance sheet.
The issuance process involves several steps, including identifying eligible green projects, creating a green bond framework aligned with green bond principles, and often obtaining third-party verification, it says. World Economic Forum.
Different types of green bonds are available on the market, each with specific characteristics. These include “use of revenue” bonds, revenue bonds, project bonds, securitization-based bonds and covered bonds.
For example, project bonds are limited to a specific underlying green project, whereby investors can only resort to the project’s assets. Securitization-based bonds, on the other hand, bundle multiple projects into a single debt portfolio.
The management of green bond proceeds typically involves monitoring, distribution and reporting to ensure transparency and maintain investor confidence in green bond credentials.
What are the advantages of green bonds?
Issuing green bonds offers several advantages to organizations. First, it enhances the issuer’s reputation by demonstrating a commitment to environmental improvement, which can improve public perception and stakeholder relations.
Green bonds also provide access to a wider investor base, including those focused on socially responsible investing, potentially leading to more favorable pricing. This expanded pool of investors can help diversify funding sources and reduce borrowing costs.
In addition, green bonds may offer tax benefits in some jurisdictions, such as tax exemptions or credits, making them more attractive than comparable taxable bonds.
By issuing green bonds, companies and governments can align their financing strategies with their sustainability goals, attracting environmentally conscious clients and partners.
Energy portal
Source: energetskiportal.rs
