Retail investors can tap into the market of climate and sustainability-linked bonds, according to experts.
Their name is bonds, green bonds, and they keep rising in popularity.
They come in two declinations, as there are different options for lenders who are looking to have a positive impact with their money.
The so-called green bonds, also known as climate bonds, are a fixed-income instrument to raise money for climate and environmental projects. They have been around for the past decade.
In 2012, global green bond issuance was only US$2.6bn but they rocketed to US$193bn as of last week, according to Refinitiv data, which is nearly three times the amount raised at this point in 2020.
ESG-oriented investors can also put their money in sustainability-linked bonds (SLBs), which have topped US$25bn in the year to date, Euromoney reported, and are forecast to reach US$150bn for the whole year.
Instead of linking the cash to specific projects, the borrower commits to meet sustainability goals over time. It’s a relatively recent investment vehicle but it’s been gaining ground quickly.
Earlier on Wednesday, Kingfisher PLC (LON:KGF) unveiled a £550mln three-year revolving credit facility linked to sustainability and community-based targets.
The home improvement retailer will benefit from a lower interest rate if it delivers on them.
The B&Q and Screwfix owner has pledged to cut emissions, planting trees, using 100% sustainable wood and paper for its products and donating to people with housing needs.
The move follows similar initiatives by fellow London-listed companies such as Joules Group PLC (LON:JOUL), Britvic PLC (LON:BVIC) and Tesco PLC (LON:TSCO).
The yields of green bonds are generally the same as for conventional bonds, so investing in green projects does not come at lower returns, according to Liberum.
“We think that green bonds are a great step forward because it helps companies raise additional funds for specific projects to make their business more sustainable, while investors have the additional security that their money will only be used for projects that do no harm,” analyst Joachim Klement told Proactive.
“Because green bonds are issued and traded like conventional bonds, they are also accessible for retail investors, if not at issuance, then at least in the secondary market. By now, most major banks and brokers even provide lists of green bonds to their clients so retail investors no longer have to find out on their own which bonds are green and which ones are not (something that is generally difficult to do for retail investors because they don’t have access to professional financial data).”
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