Combine returns and climate protection. With impact investments.
Would you like to reconcile your financial interests and climate protection? New ways to invest such as impact investments and sustainable investments make this possible. How you can use green bonds to make targeted investments in environmental projects without forgoing returns.
Impact investments combine climate protection and returns
The global warming of land and sea is one of the greatest challenges facing humanity. As a result, topics such as sustainability and protecting the climate and environment are becoming increasingly important. This trend also applies to investments: Many people would like to combine their financial interests with making a contribution to environmental or climate protection. As a result, new investment forms that combine aspects of traditional, purely return-oriented investments and donations motivated by philanthropic considerations have arisen on the market – these forms are known as sustainable investments and impact investments.
Sustainable investing is often based on a process of exclusion. For example, companies from controversial sectors such as the tobacco or arms industry are excluded from sustainable portfolios. By contrast, impact investing aims to have an effect. With impact investing, investors can use their investments to achieve a specific, measurable impact – and thus help solve social and environmental problems.
Green bonds invest in environmental projects
One impact investing category that is already available to a broad range of investors and has been well received by the market is green bonds. What sets green bonds apart is how the funds are used: With ordinary bonds, the issuer can use the borrowed funds to finance any business project it wants. The funds from green bonds, on the other hand, must be used for ecological projects that have a positive impact on the environment and the global climate.
Investors who invest their assets in green bonds can, for example, support the use of renewable energies: This includes projects to construct photovoltaic systems, wind parks, and energy-efficient buildings. Green bonds are always used for impact-oriented projects and innovations, and the issuer must provide the bondholders with regular progress reports.
Impact investments in green bonds particularly benefitted the renewable energy sector in 2018.
Source: The World Bank Green Bond Impact Report 2018
Return of impact investments is comparable to ordinary bonds
In 2014, the "Green Bond Principles" were drawn up on the initiative of 13 major banks with the aim of ensuring the traceability of the funds generated by impact investments. The label, which is currently still voluntary, requires a high degree of transparency and is also supported by Credit Suisse.
Aside from the use of the funds, green bonds work like ordinary bonds. The issuer is liable in the same way as for other bonds. The financial returns on bonds in the same currency and with the same maturity are therefore roughly the same – with the difference being that an investment in green bonds has a positive impact on the climate or the environment.
Innovative bonds enable individual investors to make a contribution toward achieving the UN climate goals without sacrificing returns.
Pascal Schuler, Head of Direct Investments & Financial Products at Credit Suisse
Impact investing enjoys widespread popularity around the world
Green bonds are a young, but rapidly growing investment opportunity. The European Investment Bank, a transnational development bank owned by the EU member states, was the first issuer of green bonds, and issued the first one in 2007. Since then, green bonds have enjoyed increasing popularity among investors.
In particular, 2017 was a good year with a number of green bond issues. This may have been in part thanks to the UN Climate Change Summit held two years ago. At the summit, participating countries agreed to limit global warming to less than two degrees Celsius. Interest in impact investing is picking up in emerging markets as well. In 2017, for example, Fiji started issuing green bonds and China is one of the largest issuers of green bonds in the world.
