Green bonds – The key financial weapon in the arsenal to fight climate change – HS Insider

Climate change will likely be irreversible by 2030. It is crucial that we find immediate solutions that can quickly and effectively repair the damage done to the Earth.

Green bonds are financial instruments designed to support environmental and climate projects. Green bonds represent a powerful tool to effectively mitigate climate change. They fund sustainable projects that could help reverse climate change and increase corporate and government accountability.

Green bonds are dedicated to financing projects focused on maintaining and managing the environment and climate. This guarantees an immediate impact on the environment thanks to the funded projects. Immediate impact is exactly what we need in the fight against climate change. Most bonds are issued by government agencies or businesses to raise capital for basic operations and special projects.

For example, the World Bank, a major green bond issuer, reported issuing $14.4 billion worth of bonds between 2008 and 2020. According to the World Bank's report on green bonds, funds raised for projects primarily related to energy and efficiency, clean transportation, agriculture and land use. Since the first green bond, issued in 2007 by the European Investment Bank, many types of companies and organizations have entered the green finance market to issue green bonds in support of various green initiatives.

First, green bonds finance sustainable projects. Investors invest their money in projects that help the world as a whole. Capital raised through the sale of green bonds is used for projects aimed at contributing to climate and environmental goals.

An example of a planned green bond project is the Rampur Hydroelectricity, in Himachal Pradesh, India. The Indian government has requested assistance from the World Bank to finance the Rampur project, which is expected to generate around 1,770 million units of clean electricity per year, which will be distributed through the Indian power grid. Such projects, financed by green bonds, significantly improve the quality of life in the places where they are implemented by reducing greenhouse gas emissions and directly reducing the harmful effects of climate change. Projects such as the Rampur Hydropower project clearly demonstrate why we should implement green bonds on a much larger scale, particularly in disadvantaged societies and geographies. The potential for such projects highlights the transformative potential of green bonds and the urgent need to expand their use globally.

According to Green bonds: types, how buy and FAQ, Green bonds encourage sustainability and support causes and projects related to climate or other environmental causes. The use of green bonds also allows countries to achieve their climate goals. Over the next decade, an EU mandate requires countries to devote at least 37% from the funding they receive under the €672.4 billion Recovery and Resilience Facility, a plan to help countries weather global crises, to investments and reforms that support climate goals . The European Union's commitment to green investments and green bonds shows the importance of implementing green bonds in all countries and in all companies.

Second, the use of green bonds increases the accountability of businesses and governments. As society grows and expands, businesses and governments also increase the amount of waste and pollution they release into the environment. 50 billion tons of greenhouse gases in 2022. China was the largest climate polluter, accounting for nearly 30% of global emissions, according to CNN. Governments, like China's, continually release pollution, bringing us closer to the precipice of irreversible global warming. We must impose limits on the amount of carbon produced by these countries and require governments to invest in mitigating climate change. This also applies to large companies such as gas companies or agricultural companies.

The mandate requiring companies to invest in projects using green bonds allows them to offset their carbon production. According to MIT CEEPR Why do companies issue green bonds?, Unilever announced one of the most famous certified green bond issues on March 19, 2014, devoting more than $400 million to new climate-friendly production capacity. This commitment confirmed the success of a multi-year plan to develop new environmentally friendly detergents and refrigerants. It was enthusiastically received by investors, generating stock returns in excess of 5%. Over the past few years, a rapidly growing number of companies have made similar commitments, leading to a boom in the global green bond market (which now accounts for around 3.5% of total corporate bond issuance in 2020 ). This shows how companies can issue green bond mandates to invest in projects that help the environment and rebuild their aging machinery and infrastructure.

In conclusion, as a society, we need to start implementing green bond mandates and ideas in order to successfully mitigate climate change before it is too late. As an individual, you can also help the planet through green finance. When investing, consider putting your money in a green bond or any type of ETF associated with green bonds. The future of the planet depends on us as a society making a conscious effort to mitigate climate change.