Green bonds: An explainer: The Egyptian government is considering its maiden green bond issuance at a time when the nascent asset class is gaining global popularity. The World Bank issued the first ever green bond back in 2007 in a move it claims has “fundamentally changed” the relationship between investors, climate scientists and policymakers by reorienting the capital markets towards sustainable development projects. After a slow rate of issuance in 2018, Moody’s predicted in January that USD 200 bn worth of green bonds will be issued this year, citing greater involvement by US non-financials and policymakers’ increasing attention towards sustainability. Bloomberg is out with an explainer giving us the lowdown on how this eco-friendly asset class functions.

How do green bonds work? Green bonds finance specific projects that are designed to have a positive environmental impact. Businesses in industries including energy, transport, construction and water can all issue green bonds. The definition of what is and isn’t ‘green’ can be ambiguous due to the absence of any internationally-recognized standards. China, for example, currently includes so-called ‘clean coal’ in its green bond standards (something that may soon be changing) while the EU does not. Investors do not generally sacrifice returns by choosing green bonds: most carry an investment grade credit rating and are priced similarly to normal bonds. Prices may actually be more favorable than conventional debt in the secondary market due to their relative scarcity.