What Is a Green Bond
What if you could earn interest by buying a bond while at the same time funding environmental projects like solar and wind power? Green bonds were created with that intent.
What a Green Bond Is
A green bond is a bond issued to raise funds earmarked for environment-related projects such as renewable energy, energy efficiency, clean transport, and sustainable water management.
The principal-and-interest structure (coupon and maturity repayment) is identical to an ordinary bond. The only difference is that 'the use of the raised money is designated for environmental projects.'
In other words, the investor receives bond interest while designating that the funds be used for eco-friendly projects.
How Big It Has Grown
The green bond market has grown rapidly.
In the first half of 2023 alone, about $351 billion (935 issues) was issued, and combining green, social, sustainability, and sustainability-linked bonds (GSSS), annual issuance reaches the trillion-dollar range.
On an outstanding-balance basis, it is tallied as having grown from about $500 billion in 2018 to surpass $3 trillion around 2024-2025. It grew several-fold in size in just a few years.
Issuance and outstanding figures differ by aggregator and basis. Source: Climate Bonds Initiative 'Sustainable Debt Global State of the Market,' BIS Quarterly Review, LSEG (green debt surpassing $3 trillion). The cumulative total of all labeled bonds is larger.
Caution: Label vs. Reality
Green bonds have good intentions, but a 'green' label does not guarantee actual environmental impact.
1. Verification (external certification) is needed to confirm the funds were actually used for environmental projects. 2. There is a greenwashing risk of attaching the label while the substance falls short. 3. From an investment standpoint, it is ultimately a bond, so it carries the issuer's credit risk and interest-rate risk as is. Being 'green' does not make it safer.
Remember that green bonds are not free from the basic risks of bonds (such as price declines when rates rise).
よくある質問
Q. Do green bonds pay higher interest than ordinary bonds?
Not necessarily. When demand is strong, they are sometimes issued at a slightly lower yield (a 'greenium'). Interest is determined by the issuer's credit and market conditions, not by whether the bond is 'green.'
Q. Is a green bond's environmental impact guaranteed?
It is not guaranteed. Whether the funds were actually used for environmental projects must be verified through external certification and reporting, and you should watch out for greenwashing cases that only bear the label.
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