ESG (Environmental Social Governance) Newsletter Edition

Green Bonds 101

Investments derived out of concern for climate change and the accelerating adoption of alternative energy have grown significantly in popularity. Caveat emptor (buyer beware): not all investments labeled “green” are worthy investments. Although the consensus is that green bonds have proven their value; the industry is still deciding how that value is calculated, reported, and standardized.

What is a Green Bond?

Green bonds allow companies and governments to raise capital for green projects. A recent example is Ford Motor Corp raising $2.5B via green bonds to help accelerate its innovation and production of EVs (Electric Vehicles). Green bonds are issued by governments and development banks to fund green infrastructure projects.

Green bonds must prove themselves before they can be marketed as “green”. A due diligence process takes place to verify “green-worthiness”. Green bond issuers (governments, development banks or corporations) are expected to do annual reporting to investors. The ICMA (International Capital Market Association) provides guidance around transparency for investors. Understanding how much of a bond issuance goes toward green projects and the estimated impact is a source of constant debate by the media, regulators, banks, and third- party industry organizations.

A bond can be stripped of its “green leaf” if amongst other fundamental factors it does not adhere to its green commitments.