Green Bonds are ways for Governments, Municipalities, Financial Institutions, and Corporations to raise money to support a broad range of green initiatives from erecting wind turbines, to reclaiming brownfield sites, to addressing issues related to climate change, etc... The promise of Green Bonds, like any bond, is that you will get an assured return on your investment after a certain term by providing debt capital to these organizations.

The issuance of Green Bonds has been growing rapidly over the last few years with many financial institutions and corporations getting into the game at a rapid rate. The climatebonds.net website keeps a tally of how many green bonds have been issued to date and this year is set to break new records again for the amount of green bonds issued - going from approximately $11 Billion last year to an estimated $40 Billion this year.

One reason why Green Bonds are taking off is because, according to this economist article, "55% of pension-fund assets are exposed to climate risks (including heavier regulation of dirty industries); buying green bonds helps offset such risks". So pension funds want to buy into Green Bonds to hedge against climate risks that other companies in their portfolio might be subject to.

Another reason would include the fact that "US Green Bonds" as issued by the US Treasury are tax-exempt investments to incentivize investors to buy into them.

Another reason is that corporations see them as a useful way to raise money for certain types of projects. Because green bonds are growing in popularity it is getting easier to raise capital quickly by issuing "Green Bonds" for their green projects.

Finally, many of the projects that these green bonds are being used to finance are simply good investments. Many green energy projects, for example, have relatively low risk with stable long terms returns so why not invest in them.

The story on what green bonds are and how they work is just beginning. Many see a bright future for Green Bonds in helping solve a host of environmental problems. As with anything with the label "Green" attached to it, one must be skeptical of how "green" the projects are that are being funded via "Green Bonds". There is some work to standardize the criteria used for a bond to qualify as "green" but I doubt that everyone will buy into one published set of standards. It is nevertheless worth keeping an eye on how the whole area of Green Bonds evolves in the near term as more governments, large financial organizations, and large corporations throw their hat into the ring by releasing more Green Bonds. It should mean more money to finance green projects in the near term if the rate of release and subscription to these bonds stays at its present level of growth.