Finance

How sustainable are green bonds really?

In the past, the investment either had to be safe – or bring a high return. Nowadays, sustainability also counts. An example of such investments are green bonds. But how green are they actually?

The awareness of the environment and the climate is growing in Germany. The “Fridays for Future” movement gave it another significant boost.

But the challenges are immense: the EU plans to be climate neutral by 2050. Whether that will succeed is still in the stars. One thing is clear, however: awareness of the climate is playing an increasingly important role when it comes to investing.

In addition to sustainable stocks, green bonds are also very popular. But what does it mean? How do they work And are they really sustainable – just because they are called that?

What are green bonds?

Green bonds are – as the name suggests – green bonds. A bond is a personal loan that you give to a government or a company. You will receive interest for this. Companies can use the money to buy new machines or invest them in research.

However, companies or states do not use the money from a green bond for any investments – they put it into environmental or climate protection measures. That is why they are also called climate bonds.

When a state issues a green bond, it wants to use this money to support a reforestation project. But there are still no uniform regulations (see below).

How exactly do green bonds work?

A climate bond works like a conventional bond. You lend money to a state or a company and receive interest on it. Only the purpose differs – and on the basis of this the exact design of the green bond.

A distinction is usually made between three possible forms of green bonds:

  • Related to a project: In this case, there is a specific project that is to be financed with the money from the bond.
  • Related to several projects: In this case, several projects are fed in part from the money that is raised with the loan.
  • Related to a company: But there are also bonds that are issued by companies that are active in the green sector – such as a manufacturer of wind turbines.

What exactly do green bonds bring me?

Like traditional bonds, green bonds bring you income, too Return called. But what is special: If environmental and climate protection is important to you, you can invest here with a clear conscience. How green a bond is, however, depends on the specific project – so do your research before investing.

Note: Just like conventional bonds, your risk with green bonds depends on the creditworthiness, i.e. how solvent a state or company is to which you are lending money.

How green are green bonds really?

That is the key question. Because uniform regulations are still missing. However, there are voluntary standards that companies can adhere to when issuing a green bond. Examples of this are the “Green Bond Principles” or the “Climate Bond Standard”.

They contain, for example, the requirement that companies or states should provide regular information on climate projects. The “Climate Bond Standard” is more specific than the “Green Bond Principles”.

The following is important for you as a private investor: Before making an investment, find out exactly how green a bond really is – i.e. which project is to be financed and how specifically the climate targets are formulated that the project is to achieve.

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