Green Bond
A fixed-income security issued to raise capital specifically for projects with environmental or climate benefits.
What is Green Bond?
A green bond is a fixed-income security whose proceeds are earmarked exclusively for projects with environmental or climate benefits—such as renewable energy, energy efficiency, clean transportation, sustainable water management, and climate change adaptation. Green bonds follow voluntary frameworks such as the International Capital Market Association (ICMA) Green Bond Principles, which require proceeds to be tracked separately, used only for eligible projects, and reported on annually. Issuers include governments, development banks (e.g., the World Bank), corporations, and municipalities. Green bonds may command a slight yield discount (the 'greenium') compared to conventional bonds from the same issuer, reflecting strong ESG-driven demand.
Example
In 2023, the European Union issued €12 billion in green bonds under its NextGenerationEU program to fund clean energy infrastructure and climate adaptation projects. The bonds were certified under the EU Green Bond Standard and provided investors with annual reporting on funded projects and environmental impact metrics, including megawatts of renewable capacity installed and tonnes of CO₂ emissions avoided.
Source: ICMA — Green Bond Principles