Green Bonds: A Simple Form of Green Investing

April 21, 2010

By Jeff

While a lot of the opportunities to invest in green might have been slightly out of reach for fixed income investors, the more recent development of green bonds might be the perfect solution. In order for companies seeking these funds to have access to them, they must meet a set of strict criteria involving the land and energy use of the project. This is a great and simple financial tool because it creates a large pool of money only accessible to projects willing to take on the necessary action to make their project sustainable. This seems particularly powerful in an economic situation like right now where resources are so scarce.

For those who are unfamiliar with a bond, they generally involve an initial investment that pays off an annual percentage until the bond matures and the investor gets his or her initial investment back. The spin on this that a green bond makes is that the funds created by investors are then only available to companies that meet the necessary restrictions I talked about above. In addition, these bonds are tax exempt which makes them even more appealing than a normal taxable bond. These bonds took hold in the United States when a piece of legislation in the early part of the new millennium created sustainable bonds as a means of developing brownfields, encouraging sustainability, and creating green jobs.

As a quick side note, a term that is often associated with green investing is socially responsible investing. These two concepts have similar roots, but the difference is that green investing targets sustainability in particularly whereas socially responsible investing can be associated with investing practices that include any social factors in the evaluation. For example, this could mean not investing in companies involved in the tobacco market or choosing to invest in a company that one feels is performing a social good. On the green side of things, it means avoiding in investing in companies that take part in sustainably irresponsible practices or seeking out investments in companies that are actively trying to have a positive impact on the environment.

This might not be a revolution in the green investing world, but it definitely makes green investments more attainable for those who are more risk averse. It is clear from their creation that more and more of the financial world is veering towards sustainability and, considering how the rest of the world is embracing sustainability, it is my opinion that this trend is on an upward path.

Photo Source: Monica’s Dad

Tags: brownfields, Green Bonds, Green Investing, green investments, socially responsible investing, sustainable investments