We hear about "green investments" on all corners lately. But what is it all about? Let's take a look at the most important ones.
Green bonds
Green bonds are a type of fixed-income investment used to finance projects with a positive environmental impact. Like traditional bonds, green bonds offer investors a fixed return. They are issued by public, private or multilateral entities to raise capital for initiatives that contribute to a more sustainable economy and deliver identifiable climate, environmental or other benefits. Projects financed by green bonds include renewable energy, energy efficiency, clean public transport, pollution prevention and control, nature conservation, sustainable water and wastewater management, and green buildings that meet internationally recognised standards and certifications. They often have tax incentives attached to them that make them more attractive to investors.
Green loans
A green loan is a form of financing that allows borrowers to use the funds raised exclusively to finance projects that make a significant contribution to an environmental goal. A green loan is similar to a green bond in that it raises capital for environmentally eligible projects. However, it is based on a loan that is typically smaller than a bond and is made in a private transaction. Green loans and green bonds are also governed by different but similar International Capital Market Association (ICMA) guidelines. Both instruments require that 100% of the proceeds should be used only for green activities, i.e. investments in green buildings, renewable energy, water and waste management projects, clean mobility and other eco-efficient assets.
Green Investment Funds
The Green Investment Fund (GIF) is a financial instrument designed to mobilise capital for projects and companies that focus on climate change mitigation, environmental protection and the promotion of sustainable development. They operate in the investment triangle between return, safety and liquidity, while pursuing the goal of environmental sustainability, which is paramount here. However, social or economic aspects of sustainability may also be taken into account. This concept is based on the broader concept of socially responsible investment (SRI), which incorporates ESG factors into investment decisions.
Green ETFs
Today's investors have access to a growing number of "green" ETFs. ETFs are investment funds that are traded on an exchange. Investors can choose from a wide range of ETFs, from those that track a major market index to funds that track a basket of foreign currencies. Green ETFs focus on companies supporting or directly involved in environmentally friendly technologies. Some ETFs may focus on companies developing alternative energy sources or energy-efficient equipment and appliances, for example. These ETFs allow investors to access a diversified portfolio of companies, making green investing easier. Green ETFs can invest only in companies that focus on a particular technology, or they can have broader criteria.
Green real estate funds
Green real estate funds are characterised by investing in buildings and construction projects that meet green and sustainable building and operational standards. This can include properties integrated with renewable energy sources such as solar panels or wind turbines, or the integration of digital technologies that allow real-time optimisation of energy consumption, thus saving electricity and energy efficiently. These investments contribute to a cleaner environment and offer financial incentives in the form of tax breaks and lower utility costs. Thus, integrating green utilities into real estate is probably the most affordable form of ESG real estate investment today. A similar guideline for managers of these funds is, for example, green building certification. Increasingly, therefore, the market is favouring properties that meet green building standards such as LEED or BREEAM.
Does your company need advice on green financing, to assess whether the company's activities are in line with the EU Taxonomy, to compare how individual assets in the portfolio are performing in terms of sustainability or to prepare for a green bond issue?
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