Green bonds have become a popular investment product, as their proceeds are used to finance environmental projects such as renewable energy or reforestation. They are typically issued by governments, agencies or supranationals, which means they can be bought across a wide spectrum, and not just from listed companies.
However, some green bonds are issued for spurious purposes such as building dams which cause more environmental harm than good. Others do not follow reporting guidelines which suggest (but cannot enforce) the publication of annual reports on what impact an investment in the bond has made. In this way, the investor cannot know that their capital is being put to the intended use.
In 2020, the EU’s Technical Expert Group for Sustainable Finance provided recommendations for the establishment of an EU Green Bond Standard. This is a voluntary certification scheme which assures that the use of proceeds is fully aligned with the EU Taxonomy, which sets out the criteria for what is truly sustainable, using six definitions that will apply across the bloc. The EU Commission is planning a legislative proposal to adopt the standard in the second quarter of 2021.
Robeco launched Global Green Bonds in April 2020 to tap into this growing universe. The eligibility of green bonds for the strategy is based on an internally developed framework that targets those making a genuine environmental impact. A record amount of USD 222 billion in green bonds were issued in 2020, pushing the total amount now in existence above USD 1 trillion.