How Green Are Your Bonds?
Kiplinger's Personal Finance|April 2021
Fixed-income investors can make an environmental impact.
NELLIE S. HUANG

IF YOU REALLY WANT TO MAKE AN environmental impact with your investment dollars, buy green bonds. These securities fund projects that help the environment, delivering measurable outcomes without sacrificing returns you might earn from traditional bonds. And they are growing like wildflowers. Last year, the global market for green bonds—a fixed-income sector that’s just over 10 years old—surpassed the $1 trillion mark, putting it on par with the U.S. high-yield corporate debt market, says Vishal Khanduja, manager of Calvert Green Bond. This year, the green bond market could top $2 trillion.

Who’s issuing these bonds? Corporations, municipalities and even governments. Bank of America has issued five green bonds since 2013 totaling $6.6 billion. The bonds finance sustainable projects, such as North Star Solar, a Minnesota solar facility built in 2016 that generated enough power for 20,000 homes in its first operational year. France has issued green bonds for clean-energy projects and carbon-free public transportation; Germany issued green government bonds last year. Massachusetts, California and New York are big players. And Fannie Mae is a major issuer. The mortgage agency bundles the loans it makes to retrofit multifamily properties to be more energy-efficient.

Report cards count. In the green bond world, impact reporting is key. Investors want to know precisely how their dollars are improving the environment, says William Sokol, director of exchange-traded fund product management at VanEck. “It’s about how those dollars are being used.”

But picking individual bonds on your own can be problematic. For starters, there can be some confusion as to a bond’s particular shade of green. Green bonds by definition make positive environmental impacts. Social bonds, often lumped with green bonds, have community-oriented goals, such as affordable housing. And sustainable bonds provide both social and environmental benefits.

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