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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.
Organization-guaranteed Bonds – it is also known as general obligation bonds. The bonds credit-worthiness is based on the organization issuing the bond. The Organization-guaranteed bonds can be corporates, government, or public institutions.
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.
Interesting Fact The first official Green Bond was issued in the year 2009 by World Bank.
Interesting Fact The first official Green Bond was issued in the year 2009 by World Bank.
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The Green Bonds have higher coupon rates as compared to the corporate government bonds with identical tenure. The investment in green bonds is secure and free from hassle.
The issuer gets the advantage of branding and reputation management. Green Bonds improves the issuer's reputation and highlights its dedication to sustainable development.
Green bonds are a good investment options for the investors interested in decent return on investment. The yield in green bonds is relatively better.
Unlike other government bonds, green bonds are considered safe. However, it is advised to take your investment decision considering certain essential factors and hour financial goals.
Investors looking for an alternate source of income and a love for environment conservation should invest in green bonds. Also, investors interested in tax exemption can prefer green bonds for the safe investment.
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