What is a Green Bond?
Green bonds are a tax-exempt bond which is issued by federally qualified organizations and/or municipalities for the development of brownfield sites and sustainable projects1.
Why are Governments Issuing Green Bonds?
By providing a more attractive option with no tax, governments can incentivize corporations to develop sustainable projects. These projects must meet minimum requirements to be considered “sustainable.”
The National Post recently published this article which outlines the emerging success of the green bond market. With several major players entering the market, green bonds are becoming legitimized, through their organization into indexes and general availability.
Why is this Important?
Green bonds are an excellent example of creating shared value, and promoting sustainability through responsible and practical government policy that incentivizes, rather than punishes, firms. Green bonds create shared value because both companies and society benefit. Companies receive a tax free bond, while also improving upon their ethical considerations and image. Society benefits as brownfield sites are repurposed and redeveloped, whereas without these policies they would remain waste sites. Furthermore, society benefits through the actions of companies to reduce their ecological impact, primarily through adhering to LEED standards. The sole cost of this policy (assuming the government only backs ventures that do not default on payments) is the loss of interest revenue on bonds issued, however, this is a small price to pay for the benefits shared by all.
Sources Used
http://business.financialpost.com/2014/11/07/how-the-green-bond-market-will-develop/
http://www.investopedia.com/terms/g/green-bond.asp
1 http://www.investopedia.com/terms/g/green-bond.asp