What Are Green Bonds?
Green bonds raise money specifically for environmentally friendly projects. Here’s how they work and who issues them.
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A green bond is a bond whose proceeds are earmarked specifically for environmentally beneficial projects — renewable energy, clean transport, water, green buildings and the like. It’s a fixed-income cousin of ESG investing.
How they work
A green bond functions like any bond — you lend money for a fixed term and receive coupon interest plus principal at maturity. The difference is the use of proceeds: the issuer commits to funding only eligible green projects and typically reports on how the money is used and its environmental impact.
Who issues them
- Governments — India has issued Sovereign Green Bonds (a type of G-Sec) to fund public green projects.
- Companies and PSUs — firms raise green bonds for renewable and sustainability projects.
- Multilateral institutions — development banks are big issuers globally.
Why investors consider them
- Align money with values — fund environmental projects while earning a return.
- Similar risk/return to regular bonds from the same issuer — a sovereign green bond carries sovereign safety, like any G-Sec.
- Growing market — part of the broader rise of sustainable finance.
Points to note
- Return isn’t automatically higher — green bonds generally price similarly to the issuer’s regular bonds (sometimes slightly lower yield, a "greenium").
- "Greenwashing" risk — scrutinise whether the proceeds genuinely fund credible green projects; frameworks and third-party reviews help.
- Credit and interest-rate risk apply as with any bond.
Green bonds let fixed-income investors support sustainability without sacrificing much (if anything) on risk/return. Confirm specifics of any issue. Education only, not a recommendation.
