Question

Your company is new to the industry and green bond is still a taboo to the investors in this market. If your company intended to issue green bond. What are the possible strategies can you recommend to improve its attractiveness to the investors?(25marks for this question)

Answer 1

A green bond is a bond whose proceeds are used to fund environmentally friendly projects. These relatively new bonds are increasing in popularity with investors at an exponential rate.

Possible strategies to improve its attractiveness to the investors:

Awareness about environmentally Friendly Projects: Green bonds are designed to help the environment by directing portions of the capital raised to projects related to clean water, renewable energy, energy efficiency, river and habitat restoration, or mitigation of climate change impacts. Green bonds are designed to help the environment by directing portions of the capital raised to projects related to clean water, renewable energy, energy efficiency, river and habitat restoration, or mitigation of climate change impacts.

Many bond funds invest a portion of their capital to such causes, but green bond funds are those specifically invested in environmental initiatives while carrying credit ratings like other funds.

Awareness about Tax benefits: Green bonds provide investors with a way to earn tax-exempt income with the benefit of knowing that the proceeds of their investment are being used in a responsible, positive manner. The issuers of green bonds also benefit, since the green angle can help attract a new subset of younger investors—whom the issuers can profit from over an extended period.

Awareness about Lower borrowing cost: Higher demand for green bonds equates to lower borrowing costs. Lower borrowing costs means reduced expenditures, which are either passed down to the investor in the form of a dividend or used to lower the operating costs for exchange-traded funds (ETFs) or bonds.

Detailed impact reporting and greater transparency: Regular and transparent reporting is becoming a powerful tool in the green bond space.

Lower transaction costs: Obviously, Exchange Traded Funds (ETFs) replicate the index and consequently offer a liquid, low-cost, and transparent route for investors to gain exposure to the green bond markets. Active management, on the other hand, incurs higher costs due to the increased resources required to carry out a thorough due diligence process on issuers’ fundamentals and the projects they intend to finance.

With above point we can attract the new investors to invest in Green Bond.