A green bond is like any other bond where a debt instrument is issued by an issuer for raising funds from investors. However what differentiates a Green bond from other bonds is that the proceeds of a Green Bond offering are 'ear-marked' for use towards financing 'green' projects.
The key benefits of issuing green bonds are as under:
i. Positive public Relations: Green bonds can help in enhancing an issuer's reputation, as this is an effective way for an issuer to demonstrate its green credentials. It displays the issuers commitment towards the development and sustainability of the environment. Further, this may also generate some positive publicity for the issuer.
ii. Investor Diversification: There are specific global pool of capital, which are earmarked towards investment in Green Ventures. This source of capital focuses primarily on environmental, social and governance (ESG) related aspects of the projects in which they intend to invest. Thus, green bonds provide an issuer the access to such investors which they otherwise may not be able to tap with a regular bond.
iii. Potential for pricing advantage: The green bond issuance attracts wider investor base and this may in turn benefit the issuers in terms of better pricing of their bonds vis-a-vis a regular bond. Currently there is very limited evidence available in this regard, however as demand of green bonds increases it is likely to drive increasingly favorable terms and a better price for the issuer. Further, with increasing focus of the global investor community towards green investments, it is expected that new set of investors will enter into this space leading to lowering the cost of funding for green projects.