Green bonds have been the talk of the town among investors for some time now. And for good reason, we say. More and more entities, from states to private companies, are issuing green bonds to finance environmentally forward projects. The market is becoming dynamic and predictions for the future indicate that the market could reach the $5 trillion mark by 2025.
There are multiple reasons why one should invest in green bonds, and in this article we’ll discuss the two main arguments in their favor: the sustainable income and the social impact.
What are green bonds?
Green bonds are financial instruments of fixed-income, and they function just like normal bonds. But they come with a twist: green bonds are directed exclusively towards financing sustainable investments. Generally, they should stay consistent with the criteria set by the COP 21 Paris Agreement limiting the global temperature rise to 1,5°C. There are many regulations and verifications that lie behind issuing a green bond so that the investments can avoid becoming a case of greenwashing.
The term “green” includes various meanings, from renewable energy sources like solar, hydrological, wind, geothermal, to sustainable use of resources such as land or water. The green bonds taxonomy also extends to projects focused on forestry, ecosystem conservation, and water monitoring, in terms of storage and distribution.
The projects developed by DGB Group are designed with the goal of helping nature flourish and prosper. Through large scale projects, we foster ecosystem restoration, while relying on our planet’s natural capital. The green bonds issued by DGB are directed to supporting such large scale projects that benefit both local communities, and our society in the greater sense of the word, while creating real economic value.
Worldwide decarbonization efforts are accelerated each year, and for such structural changes, a vast amount of financing is needed. The perspective of such bonds expands over many years, and 70% of these bonds have a maturity of 10 years or more.
The bonds can either be certified as green bonds, or created in alignment with climate sustainability efforts. It is not only the market for these bonds that is expanding but also their scope. Currently there are numerous criteria under development that will expand the notion of “green” projects and what investments can be made using green bonds.
Why invest in green bonds?
The search for the perfect investment is never over, and there are multiple factors to be taken into account besides the balance between the ROI and the quality of the bond. Questions such as how secure is the investment?, will the market take a turn for the worse? are common, yet impossible to respond with 100% certainty.
However there are bigger picture signs that can point towards a market evolving in one direction or another. Some things are for sure - renewable energies and sustainable management techniques will play an increasingly bigger role on the market. That is the case for multiple reasons, including both the government regulations aimed in this direction, and the voluntary sustainable initiatives of various industry sectors.
But in short, the two main arguments for investing in green bonds can be summarized as sustainable income and social impact.
Secure and sustainable income
With their increasing popularity, green bonds are bound to experience a rise in demand. And in such cases, the ample verification and accreditation processes that the investment projects go through can be a stable indicator of the certainty for the return of investment. The green bonds universe is of a high quality indication (with more than 40% of bonds being marked with an AAA rating).
Moreover, the perspective of such projects is long-term oriented, and the stakeholders involved include actors such as governments and province authorities. And the investment projects are very much in line with larger sustainable development goals.
In the case of the DGB Green Bonds, these are certified instruments that are destined to finance projects which undergo rigorous verification processes. The reforestation projects are then in turn converted into Carbon Credits that support other companies offsetting their carbon emissions. The investment does not stop in the field, but goes full circle back into the market with added value.
In 2021 alone, the green bond market has surpassed $500 bn in value, with forecasts for 2022 to 2025 indicating surpassing an annual $1 tn milestone. At the end of Q2 of this year, there have been reports that the green bonds market has passed the €2 tn milestone.
Socially and ecologically impactful investments
Beyond the rising interest of actors in the market for green bonds, and the reassurances that the ample verification processes provide, a strong argument in their favor is the real sustainable impact they instill. Such investments do not just circulate through computer servers, creating abstract products that are later on sold into the market.
Rather, the green bonds investments have a very tangible finality. In the case of DGB projects, thousands of hectares of forests were restored, hundreds of thousands of tonnes of CO2 to be captured and more than three million trees planted. The impact of these projects spans all over the local-global spectrum, with real, measurable, and trackable effects.
A solution for the future
Financing the major sustainability projects is an endeavor that surpasses governments alone. These are projects aimed at the collective benefit, irrespective of the financier and ultimate buyer of the carbon credits created through some of these projects. There are indirect benefits for us all, the ecosystems, biodiversity, nature in one word.
The added bonus is that such trends are becoming less niched. They instead turn into directions in which more and more efforts of all types, from financial to human and natural resources, are geared. The market for green bonds is here to stay, and it will only grow, especially in the context of a distancing from fossil fuels in the long-term.
DGB Group is the first publicly traded company dedicated exclusively to ecosystem restoration projects, certified by authorized third parties, implementing large-scale nature-based solutions. We strongly believe in the unmatched force of nature to replenish itself, and in turn benefit us all.
