{"id":7337,"date":"2022-03-07T22:21:23","date_gmt":"2022-03-07T21:21:23","guid":{"rendered":"https:\/\/www.simtrade.fr\/blog_simtrade\/?p=7337"},"modified":"2022-03-07T22:21:23","modified_gmt":"2022-03-07T21:21:23","slug":"green-bonds","status":"publish","type":"post","link":"https:\/\/www.simtrade.fr\/blog_simtrade\/green-bonds\/","title":{"rendered":"Green bonds"},"content":{"rendered":"

Green bonds<\/h1>\n

\"Akshit<\/a><\/p>\n

This article written by Akshit GUPTA<\/a> (ESSEC Business School, Grande Ecole<\/i> Program – Master in Management, 2019-2022) explains Green bonds<\/em> traded in financial markets.<\/p>\n

Introduction<\/h2>\n

A green bond is a fixed-income product that works like a conventional bond, except that the money invested in them is used exclusively to finance green projects that support environment preservation, sustainability and reduction of climate change (low-carbon economy). Green projects can include renewable energy such as solar and wind power, energy-efficient infrastructure, clean transportation and waste management and recycling.<\/p>\n

In 2007, the European Investment Bank (EIB) issued the world\u2019s first ever green bond under the name Climate Awareness Bond (CAB), which focused on renewable energy and energy efficiency projects. This was followed by the World Bank issuing its own green bonds, until 2012 when the first corporate green bond was issued. Since then the market for green bonds has grown tremendously creating all-time highs with every passing year. The greatest issuer of green bonds in 2020 was the French government with a combined issue size of nearly 13 billion USD.<\/p>\n

Types of green bonds<\/h2>\n

Green bonds can be classified as the following: green \u201cuse of proceeds\u201d bonds, green \u201cuse of proceeds revenue\u201d bonds, green project bonds, and securitized green bonds.<\/p>\n

Green \u201cuse of proceeds\u201d bonds<\/h3>\n

The funds raised by these green bonds are invested in green projects but they are backed\/secured by issuer\u2019s assets. Hence, their ratings are the same as other debt instruments by the issuer. For instance, the Climate Awareness Bond issued by EIB is one such green bond.<\/li>\n

Green \u201cuse of proceeds revenue\u201d bonds<\/h3>\n

The funds raised are assigned to eligible green projects. However, bondholders have recourse to a specified revenue stream from the issuers which may or may not be related to the eligible green projects.<\/li>\n

Green project bonds<\/h3>\n

Proceeds from green project bonds are used for specific projects, investors having a direct exposure to the green project itself.<\/p>\n

Securitized green bonds<\/h3>\n

These bonds are backed by a large group of green projects or assets.<\/p>\n

Benefits of investing in green bonds for issuers<\/h2>\n

Lower cost of capital<\/h3>\n

Green bonds help environment focused companies to raise large amount of initial and working capital at lower costs to fund their ESG activities which require heavy initial investments. For example, companies can raise capital to fund a project focused towards generating renewable energy.<\/p>\n

Brand value<\/h3>\n

Companies issuing green bonds enjoy an increase in the brand value and favourable reputation amongst the investors, as they are becoming more inclined towards sustainability.<\/p>\n

Benefits of investing in green bonds for investors<\/h2>\n

Diversification<\/h3>\n

Over the years, the financial markets have seen an increased demand for green bonds amongst investors. Various factors have contributed to this increase including portfolio diversification, focus on socially responsible investments opportunities, fulfilment of ESG mandates of the financial institutions, etc.<\/p>\n

Tax benefits<\/h3>\n

Investors can enjoy tax incentives on the investments made in green bonds. The interest incomes generated on these bonds are generally tax exempt or provide tax reductions to the investors. Thus, the issuers also benefit from lower interest rates due to the tax benefits.<\/p>\n

Increase in liquidity<\/h3>\n

As the market size for green bonds is increasing, investors can enjoy higher liquidity and can exit their positions as per their needs.<\/p>\n

Examples<\/h3>\n

The image below shows the listing of green bonds on Euronext.<\/p>\n

Listing of green bonds on Euronext.<\/p>\n

\"Listing<\/a><\/p>\n

Source: Euronext.<\/p>\n

Related posts on the SimTrade blog<\/h2>\n

   ▶ Akshit GUPTA Euro bonds<\/a><\/p>\n

   ▶Jayati WALIA Fixed Income Products<\/a><\/p>\n

   ▶ Jayati WALIA Credit Risk<\/a><\/p>\n

Useful resources<\/h2>\n

Corporate Finance Institute Eurobonds<\/a><\/p>\n

ICMA History of Eurobonds<\/a><\/p>\n

Euronext Listing of green bonds<\/a><\/p>\n

About the author<\/h2>\n

Article written in March 2022 by Akshit GUPTA<\/a> (ESSEC Business School, Grande Ecole<\/i> Program – Master in Management, 2019-2022).<\/p>\n","protected":false},"excerpt":{"rendered":"

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Introduction A green bond is a fixed-income product that works like a conventional bond, except that the money invested in them is used exclusively to finance green projects that … Read more<\/a><\/p>\n","protected":false},"author":14,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[5,10],"tags":[287],"class_list":["post-7337","post","type-post","status-publish","format-standard","hentry","category-contributors","category-financial-techniques","tag-green-bonds"],"yoast_head":"\nGreen bonds - SimTrade blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.simtrade.fr\/blog_simtrade\/green-bonds\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Green bonds\" \/>\n<meta property=\"og:description\" content=\"Green bonds This article written by Akshit GUPTA (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) explains Green bonds traded in financial markets. 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