Need to finance the transition to a green economy
To finance a low-carbon future, we need significant investments in the energy transition for the decades to come. #GreenBonds offer an opportunity to fixed-income investors for investing in a low-carbon future. A bond is like a loan that you give to a government or a company. The difference is that the debt can be traded.
As a bond investor, you will get a coupon, which is an interest payment. The interest rate will be paid by the issuer of the bond and can vary depending on markets, risks and duration. In the case of a #GreenBond, the use of proceeds - that is, how the firm, government, or organization intends to utilize the money raised from investors - should be solely dedicated to environmental projects.
#GreenBonds contribute to achieving the SDGs
The risk profile of #GreenBonds is identical to that of a conventional bond from the same issuer, as is the structure. The main difference is that the issuer, when emitting a #GreenBond, commits itself to use the money for projects with environmental benefits. Projects financed through #GreenBonds can include for example the production of renewable energy, the implementation of smart grids, waste recycling, green building or clean transportation projects.
Thus, investing in #GreenBonds ensures that all your money will be used to finance green projects, contributing to reach one or several SDGs (6, 7, 11, 12, 13, 14 or 15). For example, investments in #Geothermal energy production or in #WindPower will be made through the emission of #GreenBonds and directly contribute to achieving SDG 7 “Affordable and clean energy”. In addition, radicant does not invest in #GreenBonds from issuers with a strong negative impact on the SDGs. As such, a #GreenBond from an oil company does not meet our criteria and is hence not investable.
While there is yet no legally binding definition of what #GreenBonds are, some principles and guidelines have been developed such as the Green Bond Principles of the International Capital Market Association (ICMA). The EU is also intending to establish its own EU Green Bond Standard, in line with the EU taxonomy, to prevent companies in highly polluting sectors from labeling their bonds as green.
How radicant selects green bonds
The #GreenBonds market has been booming for some years. To guarantee that we invest in #GreenBonds funding projects that truly contribute to the achievement of the SDGs, we invest in #GreenBonds classified as "Green" on the ICMA database. The #GreenBond Principles recommend that issuers report on the use of green bond proceeds and more and more issuers follow these guidelines.
In addition, many issuers obtain a second opinion for their #GreenBonds from research agencies such as ISS ESG, Sustainalytics or Vigeo Eiris.