An Overview of Contracts and Why They are Important to Business and Society
February 12, 2025
Acqui-hire is a different type of acquisition strategy which has come into existence with the emergence of technology-based start-ups. For many start-up companies, employees are now their biggest assets. Hence, it should not be surprising that other companies may want to acquire this employee base to meet their own business needs. Hence, if a tech […]
Infrastructure projects continue for a long period of time. Sometimes these projects continue for decades. Hence, they need long term finance. On the other hand, there are entities such as insurance companies and pension funds which are looking to invest their money for long periods of time. Ideally, insurance companies and pension funds should be […]
If you are an investor who is even remotely connected to financial markets, the odds are that you have heard about the spectacular rise of Bitcoin. The crypto-currency has grown from $10,000 to $17,000 in a week. Many believe that this is a bubble. However, there are others who believe that the rise of Bitcoin […]
Bankruptcy proceedings are often long drawn processes. The reason behind this is simple. If a company has to come out of bankruptcy, it has to get all its creditors to agree to a reorganization plan. The creditors are divided into classes based on the seniority of their debt. Each class is then expected to vote […]
We have already learned about the technique of proof of concept in the previous article. However, proof of concept isn’t the only technique that is used by entrepreneurs. There are other techniques that are frequently used as well. Minimum viable product is one of those techniques which is widely used by several entrepreneurs. In this […]
Stakeholders all over the world are concerned about the irreversible damage being caused to the ecosystem of the earth. There is a common belief amongst people that the natural habitat on planet Earth has been irreversibly damaged. It is true that climate change affects all of us.
It is also true that very soon the earth is going to run out of finite natural resources like oil and other fossil fuels. Hence, it is imperative that businesses start investing in projects which are environment-friendly.
However, businessmen all over the world are apprehensive about the possible returns from investing in such green projects.
Hence, the concept of Green bonds has been introduced to help organizations manage their move towards sustainability without putting undue pressure on their finances. After all, markets tend to work towards what is cost-effective rather than what is environment-friendly!
There is still considerable ambiguity about the entire life cycle of a green bond. In this article, we will explain the concept of green bonds and how they work in great detail.
A green bond is primarily a debt instrument. Financially it is not very different from other bonds in the sense that it is a fixed income instrument and pays a coupon payment.
The bonds are unique in the sense that they are exclusively used to finance green projects. This could be a new green project being built from scratch or an existing project being converted to more environment-friendly norms.
The European Investment Bank pioneered the issuance of green bonds in the year 2007. In the beginning, the issue size was very small. However, over a period of time, more investors and institutions have shown interest in this financing instrument. As a result, there is now a thriving primary and secondary market for these bonds.
Investors across the world are queuing up to buy green bonds. This can be seen from the fact that almost all green bond issues made till date have been oversubscribed.
The first step in the issuance of green bonds is that the project is identified. It is essential that the project is reviewed and certified by a third party. This ensures that the project is indeed based on low carbon emissions. The process is as follows:
Green bonds also have their set of challenges.
The process of getting these bonds issued is long and tedious. Also, multiple parties have to be involved in the process. Also, all of these parties have to be paid. This offsets the financing benefits for smaller projects. Hence, green bonds can be used cost-effectively only if the underlying project and bond issue is big in size.
The bonds which provide more benefit to the environment should get bigger tax breaks and lower financing costs. Only then will companies and investors be encouraged to invest heavily in these projects.
To sum it up, green bonds are an innovative idea to finance eco-friendly projects. However, they are still at a nascent stage and need to be developed further.
Your email address will not be published. Required fields are marked *