Green bonds differ from traditional bonds in that the proceeds are used to finance environmentally friendly projects designed to mitigate or offset the effects of climate change. These projects can range from renewable energy projects such as solar and wind power to other sustainable projects such as water treatment systems and energy efficient buildings. The goal of investing in green bonds is to make a positive contribution to the environment while also earning an investment return.

The green bond market is growing as investors and companies are recognizing the value of these bonds. Public and private entities around the world have been issuing green bonds to fund green initiatives. In 2017, green bond issuances worldwide totaled $150 billion, and more than $250 billion was issued in 2018. Governments are increasingly recognizing the value of green bonds and are designing incentives, such as tax credits and subsidies, to make the bonds more attractive to investors.

Unlike other types of bonds, green bonds are subject to additional oversight, such as third-party verification and assurance of the use of bond funds. This helps to ensure that the proceeds are used for the intended purposes to reduce environmental risk and create positive environmental change. In addition, the International Capital Market Association (ICMA) adopted a Green Bond Principles in 2014 to provide an additional level of assurance by establishing voluntary global standards for green bond reporting.

The future of green bonds looks promising. As investors and companies continue to recognize their social and environmental benefit, they might become even more attractive investments. The combination of attractive returns, tax incentives and other incentives, stringent oversight and the social and environmental benefits of funding initiatives to help mitigate climate change makes green bonds an attractive choice for investors and companies.