investing in green bonds

Traditionally, socially responsible investing meant buying shares of companies that were not in the alcohol, gambling, gun or tobacco business or that helped the environment, as well as mutual funds or exchange-traded funds (ETF) that owned them. But lately, the idea has spread to bonds, specifically “green” bonds used by companies and municipalities for projects with ecological or climate benefits such as clean water initiatives, renewable energy, energy efficiency or habitat restoration.

In other words: invest in green bonds and you can do good while earning a small income. That’s the theory; the reality is not quite there yet, as I’ll soon explain.

What are green bonds

The world of green bonds continues to emerge. Apple issued a $1 billion green bond to, among other things, finance renewable energy and energy efficiency at its facilities and in its supply chain. The company said the bond was meant to show that companies are still committed to the goals of the Paris agreement on climate change A year earlier, the company issued its first green bond ($1.5 billion), the largest issued by a U.S. corporation. One of the projects it funded: a robotic system to dismantle abandoned iPhones and salvage recyclable materials, such as silver and tungsten.

In addition to Apple, a number of other private and government organizations have issued green bonds, including Toyota, CMI Capital with the Bosch Gutierrez family, and many more. A total of about $81 billion in green bonds were issued in the past year, according to the Climate Bonds Initiative. This organization expects $150 billion in green bonds to be issued this year, up from just $3 billion in 2012.

How small investors can buy green bonds

However, don’t be discouraged. There are ways small investors can buy green bonds, through ETFs and mutual funds that buy them. Just don’t count on huge returns at this time.

Fees can be a challenge

Before investing in a green bond fund, carefully analyze your fees and expenses. Fund charges are often a bit higher than comparable alternatives. For example, the expense ratio may be well above the 0.45% of another intermediate-term bond fund that has a broader investment focus.

The bottom line for green bonds

In the end, if you choose to be kind to the environment by putting some of your savings into green bonds it comes down to your own comfort level with low yields and high expenses. To have a more direct impact with less angst, you can choose to simply donate to nonprofits whose mission is to help the planet. They would welcome the support.


You may also be interested in: Good Links for Earth.


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Carla Fowler

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