Green Bonds: – INSIGHTSIAS

by

[ad_1]

GS Paper 3:

Topics Covered: Conservation related issues.

 

Context:

Corporate green-bond issuance has reached new highs as U.S. companies including chip maker Micron Technology Inc., retailer Walmart Inc. and data-center company Equinix Inc. add the bonds as part of larger traditional bond offerings.

 

Need for:

  • The increasing issuance of green bonds, which finance environmentally friendly projects, comes as companies face pressure from investors, regulators and employees to show the steps they are taking to improve the environment. One way they do that is by issuing debt tied to sustainability targets.

  

What Is a Green Bond?

A green bond is a type of fixed-income instrument that is specifically earmarked to raise money for climate and environmental projects.

These bonds are typically asset-linked and backed by the issuing entity’s balance sheet, so they usually carry the same credit rating as their issuers’ other debt obligations.​

  • Green bonds may come with tax incentives to enhance their attractiveness to investors.
  • The World Bank is a major issuer of green bonds. It has issued 164 such bonds since 2008, worth a combined $14.4 billion. In 2020, the total issuance of green bonds was worth almost $270 billion, according to the Climate Bond Initiative.

 

How Does a Green Bond Work?

Green bonds work just like any other corporate or government bond.

  • Borrowers issue these securities in order to secure financing for projects that will have a positive environmental impact, such as ecosystem restoration or reducing pollution.
  • Investors who purchase these bonds can expect to make as the bond matures.
  • In addition, there are often tax benefits for investing in green bonds.

 

Green Bonds Vs Blue Bonds:

Blue bonds are sustainability bonds to finance projects that protect the ocean and related ecosystems.

  • This can include projects to support sustainable fisheries, protection of coral reefs and other fragile ecosystems, or reducing pollution and acidification.
  • All blue bonds are green bonds, but not all green bonds are blue bonds.

 

Green Bonds Vs Climate Bonds:

“Green bonds” and “climate bonds” are sometimes used interchangeably, but some authorities use the latter term specifically for projects focusing on reducing carbon emissions or alleviating the effects of climate change.

 

InstaLinks:

Prelims Link:

  1. About Green Bonds.
  2. How do they operate?
  3. Features.
  4. How are they different from Blue Bonds.

Mains Link:

Discuss the significance of Green Bonds.

Sources: PIB.

[ad_2]

Leave a Comment