Green bonds allow fixed income investors to both fulfill their investment objectives and make a positive impact on the environment. With pricing levels between green and conventional bonds generally very close and highly correlated, the investment case for holding green bonds begins with the impetus for holding any fixed income investment: primarily, income and relative safety versus other portfolio holdings.

Written by William Sokol

Given the market’s significant growth in the past five years, green bonds are attracting interest not only from environmental, social, and governance (ESG) focused investors but from traditional fixed income investors who previously did not have an efficient way to “green” their portfolios.

What Are Green Bonds?
Green bonds, in short, are simply conventional bonds with an environmentally friendly use of proceeds. Today the overall market resembles a core global fixed-income benchmark, with similar yield, duration and credit quality.

Investors can, therefore, allocate a portion of their global bond allocation to green bonds without significantly altering the risk and return profile of their portfolio. In other words, bond investors can structure a more environmentally aware portfolio without having to compromise on their investment goals.

Apple (NASDAQ:AAPL) issued a $1.5 billion green bond in February 2016, the largest issued by a U.S. corporation to date.
Proceeds from Apple’s green bond have so far been used to finance 16 projects across a variety of categories including renewable energy, green buildings, energy efficiency, and recycling/material recovery. Apple estimates that these projects will divert 6,670 metric tons of waste from landfills, generate 331mm kWh of renewable energy per year, and reduce greenhouse gas emissions by 191,500 metric tons per year. The bond was issued to build momentum ahead of the 2015 Paris Agreement where several governments pledged to reduce emissions.

Where Do Green Bonds Fit Within A Portfolio?