Go Green...

Make money and save the planet? It is not really a sentiment that you would immediately associate with the financial world but the mechanics are in place with a rapidly growing green bonds market which has become a definite area to watch out for. Not just for the UK but a worldwide phenomenon which has become rather interesting.

So a green bond would work pretty much as a "normal" bond where an investor is loaning funds to a bond issuer for a fixed period of time. At the end of which, the value of the bond is reclaimed and the investor has earned interest during the bond life. The bonds would usually be asset linked. Wherein lies the difference is that the purpose of the funds raised would be used for climate and environmental projects. (For visuals think / see Leonardo DiCaprio's Instagram page - actually quite impressive and an eye-opener). These projects can range from pollution prevention, energy efficiency, sustainable agriculture and protection of ecosystems.

Green bonds can be a more attractive investment product with additional incentives such as tax exemptions and tax credits. The figures for 2019 Q1 tell a story with green bond issuance reaching USD 47.9bn which is a 42% increase from 2018 Q1 of USD 33.8bn. There were 43 new entrants from 17 countries accounting for 23% of 2019 Q1 volume. As a product itself it may not necessarily be cheaply priced as it is still linked to the issuer's balance sheet and credit worthiness. Also how easy is it to monitor on-going projects funded by green bonds and the appropriate level of data collected to justify its green status?

All pros and cons to one side, there is something very fascinating about governments and countries essentially saying these are the environmental projects and social areas that we care about. Thus who is doing what in the green space...