In recent years, the world has seen a dramatic rise in the number of companies and governments issuing green bonds. Green bonds are debt instruments that are used to finance projects that have a positive environmental or climate impact. As the demand for sustainable investments continues to grow, financial institutions are exploring innovative structures for green bonds. This article provides an overview of three such structures: green securitisations, sustainability-linked bonds, and green social bonds.
Green securitisations are a type of bond that is backed by a pool of assets that have a positive environmental impact. These assets can include renewable energy projects, energy efficiency projects, or green buildings. The proceeds from the sale of the bonds are used to finance the underlying assets. The investors receive regular payments from the pool of assets and are protected from any losses if the underlying assets fail to perform.
Sustainability-linked bonds are debt instruments that are linked to the issuer’s sustainability performance. The terms of the bond are linked to certain sustainability targets that the issuer must meet in order to receive the full amount of the bond. If the issuer fails to meet the targets, then the bondholders will receive a lower return. This type of bond is designed to incentivize issuers to meet their sustainability goals.
Finally, green social bonds are debt instruments that are used to finance projects that have both a positive environmental impact and a positive social impact. These projects can include renewable energy projects, energy efficiency projects, or social housing projects. The proceeds from the sale of these bonds are used to finance the underlying projects. The investors receive regular payments from the pool of assets and are protected from any losses if the underlying assets fail to perform.
In conclusion, green bonds are an important tool for financing projects that have a positive environmental or climate impact. As the demand for sustainable investments continues to grow, financial institutions are exploring innovative structures for green bonds. This article provided an overview of three such structures: green securitisations, sustainability-linked bonds, and green social bonds. Each of these structures offers unique benefits and can be used to finance projects that have a positive environmental and social impact.
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