While investing in equity does present certain risk given the fluctuations of equity markets and performance of individual companies, green bonds present an alternative way to invest in the renewable sector by offering a more predictable fixed income style return.
In contrast to buying shares and owning a piece of a renewable energy company, green bonds are a loan from the investor to a company to be used exclusively for investing in green projects.
The investor receives interest income on their investment (typically higher than a savings account or GIC) over a defined period of time, otherwise known as the term of the bond. At the end of the term, the investor receives the full value of principal back.
In general, bonds are lower risk than stocks because the repayment takes legal priority (also known as seniority) above shareholder equity. That said, most green bonds are not secured against the projects themselves, particularly in the case of renewables.
For more investor security, some green bonds are “senior secured” against the underlying assets, but these are rare (about 4% globally).
While green bonds offer more predictability and security, the one downside to green bonds is that they are usually illiquid, which means the investor usually must wait until the end of the term for the full principal to be returned.
RE Royalties Green Bonds invest in growing the clean energy sector while offering investors a secured 6% annual return, paid quarterly for 5 years.
As an investor, you can take advantage of the growing renewable energy sector, while making a measurable impact on the environment. The minimum investment is $5,000 and our Green Bonds are eligible for registered accounts such as RRSP, TFSA, RRIF and RESP.
Read the full version of this article in the Responsible Investment Association Digital Magazine.