Slowly but surely, investors seek and prioritize bonds that support green, sustainable, and social-oriented business developments. Many agree that the Paris Climate Accord signed by hundreds of nations in 2015 was an inflection point. It brought the issue of global warming, net-zero emission target and climate change to the fore along with an array of other issues of dire environmental concern.
Those in the business to make money say they truly want to invest green and sustainably. At the same time, they are highly averse to risking their fortunes on “pie in the sky ideas” or plunging capital into backing what remains a lot of untested technology.
However, those fears are being increasingly allayed as emerging technologies like solar energy, green buildings, smart waste management, and climate change adaptation are proving to be sources of good profits.
In short, green investing is not just good and necessary for the salvation of the planet. It’s becoming a core economic imperative driven by the hard realities of what is happening to the planetary environment right before our eyes.
The ideal has become: “Start investing green and sustainably now or allow the best long-range opportunities to erode year by year.” Three basic types of green bonds are identified:
- Green Bonds – Debt securities that focus on environmental and climate-related projects. The first one was issued by the World Bank in 2008.
- Unlabeled Green Bonds are aligned with low-carbon projects, such as renewable energy or clean water projects.
- Bonds of Climate Leaders — These bonds are those that demonstrate a commitment to mitigating carbon emissions and their larger impact in sectors that may include water, plastic, biodiversity, or air pollution.
Social Bonds
These represent business opportunities that finance social programs and activities that further positive results for people in their everyday lives.
Some examples of social bonds are those that support food security and sustainability programs, affordable housing, educational opportunities, basic infrastructure, and socio-economic advancement.
Social bonds are identified and oriented by voluntary guidelines that have been developed by the ICMA, the International City-County Management Agency. Although his group was founded back in 1914, its relevance has taken on new meaning in the age of ESG investing. (ESG stands for environmental, social, and governmental).
The ICMA has put out what it calls Social Bond Principles. This serves as a roadmap, of sorts, for those seeking to make investments in socially responsible projects.