Green bonds are issued to raise financing for sustainability or climate related investments. These bonds are similar to traditional bonds in that they pay interest to investors, but the proceeds from the sale of green bonds are specifically earmarked for projects that have a positive environmental impact.
Green bonds are typically issued with the same credit rating as the issuer's traditional bonds, and the maturity, coupon, and other terms are similar to those of other bonds. However, they may have additional features, such as a use of proceeds, to ensure that the funds are used for a specific environmental project. Green bonds are also subject to independent review and certification to ensure that the proceeds are being used for eligible green projects.
The demand for green bonds has been growing in recent years as investors become more interested in environmentally friendly investments. Green bonds help to finance renewable energy, energy efficiency, sustainable transportation and water treatment plants, among others. They also help to raise awareness and encourage investment in environmental projects and it is a way to align financial markets with the Paris Agreement goals.
Note: The World Bank has issued over 150 green bonds since 2008, with a combined value of almost $15 billion.