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A green bond is a debt instrument designed specifically to support specific climate-related or environmental projects. Investing in Green Bonds is a good choice also for retail investors.
They are used to finance projects aimed at sustainable agriculture, pollution prevention, fishery and forestry, clean water and transportation, and environment-friendly water management projects.
Green bonds are majorly divided into three types. They are a good source for safe investment. For corporates, it is one of the best tools to raise funds to support environment or climate-related projects.
The credit-worthiness in asset-backed bonds is tied only to the expected revenue from the solar farm and not the other cash flows of the issuer. The solar farm asset is transferred into a separate entity, known as a special purpose entity (SPE) or special purpose vehicle (SPV). This entity holds just this asset. The lenders are repaid only from the earned revenue from the farm.
it is a dual-recourse bond. Hybrid bonds are also popular as covered bonds. It can be a two-way structure – in the first method, if there is the condition of payment default, the lender will have the right over the farm. He /she can claim other assets if the farm value is not enough to pay the lender. The farm is in an SPE in the second method. In the condition of default, the SPE assets are transferred to the lender. If the farm value is not enough to pay the lender, the hybrid bond holder can claim other assets as well.
it is issued for an average tenure of 14 years or more. Sovereign Green Bonds are allocated to fund projects associated with climate adaptation and climate mitigation. The green bondholders also enjoy tax benefits. Sovereign green bonds are suitable for investors having an interest in environmental and climate conservation projects.
Sovereign green bonds are also a secure source of fixed income.
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