3. Shades Of Green

As the market for green bonds grows, investors should use common sense when evaluating product for the development of a green portfolio.

In addition to green-certified bonds specifically (from the CBI and other organizations), advisors and their clients can build quality portfolios with bonds that offer a sustainable, environmental benefit, even though they’re not technically certified as “green.”

Examples include public transit, water and sewer systems, municipal recycling initiatives and similar products and services.

A slightly lighter shade of green for bond investors are those that “do no harm,” including fixed-income investments in education, housing and other investments earmarked for the public good.

One  point of interest is the issuance of a green bond earlier this year from oil and gas giant Repsol, which drew both praise and consternation from industry watchers, the latter concerned it was a case of “green washing” or the practice of garnering positive PR without actually engaging in green practices. Repsol is a traditional oil and gas producer that claims the bond is green because it will save 1.2 million tons per year of carbon dioxide through improved efficiency of their operations. In spite of the tangible savings in carbon emissions, the bonds were left out of the primary green bond indices as the bonds were viewed as extending the life of the company’s fossil-fuel assets. Whether or not this is “green washing”, it’s another example of the shades of green that exist.

4. Don’t Fence Me In

Some issuers engage in what’s known as “green fencing,” in which a sliver of an issuance is dedicated to green investment, while the rest of the portfolio’s investments may be unrelated—and not necessarily sustainable. 

For example, a power company might simultaneously issue multiple bonds, one that finances  wind and solar power generation initiatives, and another that finances traditional fossil fuel based power generation projects.

Given a choice, it might make sense to invest in more pure play green bonds, but each investor’s wants, needs and requirement are different, requiring the flexibility that green fencing can provide.