Green Bond

Green bonds work like ordinary bonds: the issuer borrows money and pays interest. The difference is that the issuer commits to using the money for eligible green projects and reporting on how it is spent and what impact it has.

The European Investment Bank issued the first climate awareness bond in 2007, and the World Bank followed with its first green bond in 2008. The market has since grown to include governments, companies, banks and local authorities worldwide.

Most green bonds follow voluntary guidelines, such as the Green Bond Principles published by the International Capital Market Association, first issued in 2014, which cover the use of proceeds, project selection, management of proceeds and reporting. Many issuers also obtain an external review. The European Union introduced a voluntary European Green Bond Standard with stricter requirements.

For example, a city might issue green bonds to fund new electric buses and cycling infrastructure.

Critics warn about greenwashing, where projects labelled green deliver limited environmental benefit. Investors increasingly scrutinise how proceeds are used and whether issuers’ overall strategies are consistent with their green claims.