Green Bonds

Falah Ahmad
Apr 14
2 min read

Updated: Apr 19

What It Is and How It Works

Green bonds are assets issued by both public and private organizations whose main purpose is to finance environmentally sustainable projects. Thus, individuals or companies that decide to make financial investments are offered the opportunity to do so in a way that - at the same time that allows them to make a profit - the possibility of promoting projects that in some way help to mitigate the effects of climate change and environmental deterioration.

The Policy Impact

To talk about the effects arising from the issuance of Green Bonds, it is convenient to separate them in two. On the one hand, for savers it allows a safe and accessible way to finance projects that they consider relevant and that according to their own principles are convenient. Its dissemination, at the same time, can help to raise awareness of the environmental and climate conflicts that our common home faces today.

On the other hand, the main impact of the emergence of green bonds is to allow the realization of investment projects that would probably not have been possible otherwise. This, in turn, results in a benefit for society as a whole (link to externalities), which will be able to see some of the harmful consequences of climate change mitigated.

In general, many States and Multilateral Organizations centralize the issuance of this type of securities, in order to guarantee and control the correct use of funds.

Some Debates Among Economists

Take Michael, for example, a young man in his 30s who has been warned about the causes and consequences of global warming, which has caused him great concern. Michael is an administrative employee in a software company and does not believe that his work skills can be useful to combat climate change, but every month he manages to save a few dollars that he generally puts in his bank's fixed-term deposit. While scrolling through social networks, he came across an advertisement for a new financial instrument: green bonds. It is a project to finance the construction of recycling plants throughout the country, and they pay an annual interest rate very similar to what Michael used to get with his fixed-term deposit. He likes the proposal!

On the other hand, a cooperative organization of recyclers has been trying for some time to seek financing to establish waste management plants throughout the country, but its members never had the resources to do so, and the bank demanded a very high interest rate. Now, thanks to many committed citizens like Michael, they will be able to carry out this project. Its a Win Win!

Stakeholders and Political Implications

Those involved in the issuance of green bonds are: environmentally sensitive savers; developers of green initiatives; and the public, international, or private body in charge of issuing and overseeing the transparent use of funds.