Question

Can you plz explain for me about green bond and do green bonds represent a possible solution to climate change problems? If green bonds have a high potential to help alleviate climate change, how can we publicise them better?

Answer 1

Green bonds are those bonds that are used specifically for climate & environmental projects. They are asset linked & are backed by issuer’s balance sheet. Also known as climate bonds.

Thy come with tax incentives like tax exemption & tax credits making them a more attractive investment when compared with other kinds of bonds. They provide incentives to tackle issues like climate change & a movement to renewable source of energy. To qualify for the green bond status, one would be verified by third party such as climate bond standard bond which certifies that the bond will fund for projects that provide benefits to the environment.

Green bonds an effective tool for climate change?

Green bonds can be an effective tool to manage climate risks provided the issuers & investors focus on both climate change mitigation & adaptation & show the alignment with issuer low carbon transition plans. The failure to assess the responsibility of the issuer can make the green bonds vulnerable to climate risks i.e. green bonds issued by an issuer unable to carry out their strategies can make the business less profitable & also vulnerable to event risks.

AIM’s in-house sustainability verification and impact analysis includes both aspects: assessing both issuer and frameworks from a transition perspective, while seeking to support activities promoting climate resilience. We also require and encourage transparency and reporting on these elements, which helps investors understand and communicate climate risks and impacts to their stakeholders.

However, significant further work is required to develop tools and harmonization in disclosure to enable comparability and application of data for navigating climate risks. As a dedicated impact bond asset manager, all of our investments must support the Paris Agreement and Sustainable Development Goals. Assessing climate risks is core to our business.

How to better publicize green bonds?

The following steps can be taken to publicize the green bonds:

• Third party reviews and consultations – recognized experts in environmental sustainability may review or help in the establishment of the issuer's processes for project evaluation and selection. Such reviews and reports are private and may be made publicly available only at the discretion of the issuer
• Audits – auditors may independently verify or audit, for example, the internal tracking method and the allocation of funds. Such reports and audits by qualified third parties or internal and/external auditors may be publicly disclosed at the discretion of the issuer
• Third-party certifications – these may be used to provide assurance on the green credentials of green bonds (See further below)
• Ratings – a number of credit rating agencies are developing their own green assessments to assist investors in determining how “green” a project is.