For those concerned about their environmental footprint – or the impact of their purchasing or investment decisions – Canada green bonds can be a great option because they enable you to invest in projects that combat climate change and contribute to a more sustainable future.
What are green bonds?
Green bonds are a type of fixed-income investment used to finance or refinance environmentally-focused initiatives like renewable energy, water management, and biodiversity support. Green bonds can be issued by governments, municipalities, corporations, or financial institutions.
How to invest in green bonds
Investing in green bonds is the same as investing in a regular bond. The investor lends money to the issuer, and the issuer uses that money to fund its sustainability initiatives. The issuer then repays the principal and interest to the investor. Green bonds are typically sold to investors through exchange-traded funds (ETFs) and mutual funds. They are also available through online platforms.
Benefits of owning a green bond
- Investing for impact: Build your portfolio with a positive impact
- Competitive financial returns:Companies focused on ESG concerns generally have a better ability to mitigate the risks associated with legal challenges, regulatory fines, mismanagement, or corruption, compared to a company that overlooks these concerns.
- Growing industry: Ethical investing is growing, driven by rising ESG awareness
- Portfolio diversification: Unique investment that others may not have due to their own investments in traditional stocks and bonds
- Government benefits: Some governments offer tax perks or subsidies
How do you know if a green bond is truly green?
To ensure a green bond is credible and transparent in supporting sustainable initiatives, there is a guide called the Green Bond Principles that investors can consult. The criteria are: use of proceeds, project evaluation and selection, management of proceeds, and reporting. There is a lot of work being done to ensure companies are meeting the carbon and sustainability targets they claim to achieve, and avoiding greenwashing. A recent study by Ivey Business School’s Building Sustainable Value Centre, for instance, set out key targets to reduce carbon emissions – as well as recommendations for companies and governments to incentivize green initiatives.
How do green bonds link to ESG investing?
Green bonds are linked to the environmental focus of ESG investing – or the “E.” ESG stands for environmental, social, and governance concerns, and is for investors who care about the company’s behaviour and values. Ways these investors assess the company’s activities include its carbon footprint, working conditions, and board diversity.
How are green bonds different from regular bonds?
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