If you desire to not only invest your money but also improve the lives of others, then impact investing is the way to go. You have an option of investing in causes such as education, housing, and healthcare. Another area that has been gaining traction is the area of environmentally focused investing.
Last year, $36.6 billion in green bonds were issued, which was three times the amount issued the year before, according to Climate Bonds Initiative. The World Bank estimates that green bond issuance could reach $100 billion by the end of 2015. Consequently, green bonds are gaining more attention. Green bonds, also known as climate bonds, are debt issued to raise funds specifically for initiatives focused on improving the environment. Some examples include projects that are centered on clean water, renewable energy, and the reduction of climate change.
If you’re passionate about the environment and you want your investing to reflect that, you may want to consider green bonds. Certified Financial Advisor Benjamin J. Bailey, a fixed income investment manager for Everence Financial and an adviser to Praxis Mutual Funds, sat down with The Cheat Sheet to chat with us about some important things to know about investing in green bonds.
The Cheat Sheet: Why are green bonds becoming a trend?
Benjamin J. Bailey: Over the last few years the issuance of green bonds has exploded and these green bond offerings have shown investors new possibilities. Many people are conscious of where they shop and the food they consume, but they might not understand that their investments aren’t harmonized with those same values. Understanding that an investor can match their investments with their values can be very eye opening. So green bonds have met an environmental need and have been met with great investor interest.
CS: Can you explain to our readers what impact investing is?
BJB: We use the term impact investing to describe investments that generate both financial returns and promote a social good. The social good might be increased affordable housing availability, mitigation of an environmental problem, or possibly an important societal goal like increased educational attainment.
CS: What are some things investors should know about green bonds?
BJB: Investors should know that green bonds are a way to express their values and still get returns similar to other bonds. This isn’t a choice between having an impact and receiving an acceptable return. The investor can have both. Many green bonds are highly rated with yields just a bit higher than U.S. Treasuries, but there are other green bonds with higher risk and higher yields.
CS: What are some things investors should be aware of?
BJB: Investors should be aware that a fully diversified portfolio can’t be constructed of just green bonds, but they should be an important part of a diversified portfolio with an SRI (Socially Responsible Investing) or ESG (Environmental, Social, and Governance) mandate. The Praxis Intermediate Income fund is a diversified bond fund that invests over 17% of the fund in positive impact bonds while utilizing social screens and ESG data integration.