The market for green bonds is expanding dramatically as investor sentiment towards environmental issues intensifies, but the industry and standards are still evolving. Investors are left wondering how green the projects being funded truly are.
According to BNN Bloomberg, approximately 90% of green bonds issued are externally reviewed to ensure proceeds are used to finance or re-finance green projects.
Investors should seek out green bonds that follow an established framework with recognized third-party verification.
The most used frameworks are the Green Bond Principles, endorsed by the International Capital Market Association (ICMA) and the Climate Bonds Initiative certification.
The largest third-party verifier against these standards, the Centre for International Climate Research (CICERO), builds on the guidelines to give investors an indication of how ‘green’ the projects are based on the projects funded.
CICERO uses three shades of green:
1) dark green is for projects that correspond to a long-term low carbon and climate resilient future, such as clean, renewable energy;
2) medium green is for projects that represent steps towards a long-term vision, but are not there yet, such as plug-in hybrid buses; and
3) light green is for environmentally projects that do not alone contribute to the long-term vision, such as efficient fossil-fuel infrastructure.
Such standards help investors select investments based on the level of environmental impact they would like to make in their portfolios.
Figure 1. CICERO Shades of Green
Green bonds are an innovative and important financial instrument to help achieve global and national emission targets. The green bond market has been growing rapidly over the past several years.
In 2019, CDN$9.6 billion in green bonds were issued in Canada and US$255 billion were issued globally. While this still represents a small portion of new bond issuances, this emerging sector is becoming more mainstream and on the radar for climate-conscious investors.
For investors wanting to take climate action, green bonds provide a stable, predictable, fixed-income investment with measurable impact benefits.
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.