Green Bond
Definition
A green bond is a fixed-income financial instrument specifically earmarked to raise capital for projects with environmental benefits, such as renewable energy, clean transport, or sustainable water management. Green bonds follow established standards like the ICMA Green Bond Principles and increasingly the EU Green Bond Standard. They provide investors with a way to finance the transition to a low-carbon economy.
Why It Matters
The green bond market has grown exponentially, exceeding $2 trillion in cumulative issuance. Green bonds are a key instrument for channelling private capital toward climate and environmental objectives at scale.
Related Terms
EU Taxonomy
The EU Taxonomy is a classification system establishing a list of environmentally sustainable economic activities based on science-based technical screening criteria. It provides a common language for investors, companies, and policymakers to determine which activities can be considered genuinely sustainable. Activities must substantially contribute to at least one of six environmental objectives without significantly harming the others.
Impact Investing
Impact investing refers to investments made with the intention of generating positive, measurable social or environmental impact alongside a financial return. It spans asset classes including private equity, debt, and public equities, targeting outcomes aligned with the SDGs. Impact investments are distinguished from ESG integration by their explicit intentionality and impact measurement requirements.
Renewable Energy
Renewable energy is energy derived from natural sources that are replenished at a rate faster than they are consumed, such as solar, wind, hydroelectric, geothermal, and biomass. Unlike fossil fuels, renewable sources produce little to no direct greenhouse gas emissions during operation. The transition to renewables is central to global decarbonisation efforts.
Climate Risk
Climate risk refers to the potential negative impacts of climate change on organisations, economies, and ecosystems. It is typically divided into physical risks (extreme weather, sea-level rise) and transition risks (policy changes, technology shifts, market repricing). Understanding climate risk is essential for long-term strategic planning and investment decisions.