Green Bonds
Characteristics:
- Use of Proceeds: Green bonds are fixed-income debt securities issued by public, private, or multilateral entities to raise capital for environmentally friendly projects like renewable energy, energy efficiency, and conservation.
- Backed by Issuer’s Balance Sheet: Most green bonds are asset-linked, meaning they are backed by the issuer’s overall balance sheet, which usually carries the same credit rating as their other debt obligations.
- Tax Incentives: They may offer tax advantages in some jurisdictions, making them more attractive than comparable taxable bonds.
- Types of Green Bonds: Include “use of proceeds” bonds, revenue bonds, project bonds, securitization bonds, and covered bonds.
Environmental Impact Bonds (EIBs)
Characteristics:
- Performance-Based Returns: EIBs pay returns based on the project’s success in achieving its environmental goals. This means investors are directly tied to the project’s performance and may share risks and rewards.
- Experimental Projects: Often used for experimental or unproven environmental technologies, EIBs provide a way for issuers and investors to test whether a project effectively addresses environmental challenges.
- Focus on Impact Measurement: EIBs require detailed impact measurement to determine returns, making them more outcome-oriented compared to green bonds.
Comparison
| Feature | Green Bonds | Environmental Impact Bonds (EIBs) |
|---|---|---|
| Use of Proceeds | Earmarked for green projects, backed by issuer’s balance sheet | Linked to environmental performance outcomes |
| Credit Risk | Same credit rating as issuer’s other debt obligations | Returns vary based on project success |
| Investment Focus | Support sustainable projects | Incentivize innovative environmental solutions |
| Return Structure | Fixed returns | Returns tied to project’s environmental impact success |
In summary, while both types of bonds support environmentally beneficial projects, green bonds are more traditional in their structure with fixed returns and a broader scope of projects, whereas Environmental Impact Bonds focus on performance-based returns and often support innovative or experimental environmental solutions.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-do-green-bonds-compare-to-environmental-impact-bonds/
