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IF GREEN BONDS RAISE FUNDS THAT COULD HAVE BEEN RAISED BY REGULAR BONDS, WHAT ARE THE BENEFITS TO ISSUERS?

The funds raised by the first green bonds could have been raised with regular bonds. Green bonds, however, allow issuers to reach new investors, making such issuers less dependent on specific markets. Green bonds also help raise awareness about issuers’ environmental programs.

Since most green bonds in the market today carry similar financial characteristics as regular bonds from the same issuer (that is, they are backed by the full credit of the issuer), one could argue that they offer limited benefit to issuers. However, reaching different investor groups is valuable to expand funding sources. In particular, green bonds have attracted investors from the growing segment focused on sustainable and responsible investing (SRI) and investors that incorporate ESG (environmental, social, and governance) criteria as part of their investment analysis.

In addition to reaching different types of investors, green bonds have proven to be an effective tool to raise awareness and open intense dialogue with investors about projects that help address climate change and other environmental challenges.

For example, issuers in state and local governments are using green bonds as a tool to reach constituencies physically located close to the green projects they intend to support. The opportunity to invest in a program that improves one's community increases one's sense of connection and social responsibility.

 

 

 

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