The profitability of green bonds and their application to environmental care are the main factors that have made this type of investment asset one of the most sought-after financial products by investors. In fact, since its creation in 2007, the volume of this type of asset has soared to such an extent that in 2023 it surpassed the issuance record with close to 500,000 million.
If you want to learn more about them and, in particular, the profitability of green bonds, read on.
What are green bonds?
Green bonds are a type of debt issued by public or private institutions used to finance or refinance sustainable and socially responsible projects, covering areas as diverse as renewable energy, energy efficiency, clean transportation and responsible waste management. The first green bond in history was issued by the European Investment Bank (EIB) and since then it has become a very large, highly liquid market that is in great demand by investors.
The four pillars of green bonds
Green bonds are not only characterized by the purpose of the project they finance, but also by four pillars that serve both to help investors and to guarantee their reliability:
- Use of funds: as we have already seen, the money must serve a sustainable or socially responsible purpose.
- Project selection: issuing organizations are required to specify those aspects that affect the eligibility or exclusion of proposals.
- Management of funds: the issuing organizations must demonstrate that the amounts related to the bonds are being used appropriately.
- Reporting: all of the above must be reflected in the detailed reports that each bond issue requires and that are sent to interested investors.
The attractiveness of green bonds
Green bonds combine two of the main attractions that investors look for in any investment: on the one hand, that the money serves to make the world a better place. Sustainability and care for the planet have been occupying more and more space on investors’ roadmaps, which is why the green bond market has grown so much.
On the other hand, the returns of green bonds has become another of their great claims, since it is not only as competitive as other projects, but in some cases even exceeds that offered by many other assets. After all, as these types of projects have expanded, so have the returns they generate.
The profitability of green bonds
The returns that green bonds offer investors have generally grown since the market took off in 2007. In fact, generally speaking, green bonds have had years in which they have done significantly better than their ‘normal’ counterparts, i.e., other bonds without a specific purpose.
Thus, if we take the index that tracks the performance of sustainable bonds (Bloomberg MSCI Global Aggregate Sustainability), we see that it has outperformed normal bonds in four of the last seven years. In some cases, such as 2019 and 2020, with a wide lead, and even in others, such as in 2017, almost tripling in profitability.
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |
| Bloomberg MSCI Euro Green Bond | 3,5 | 2 | 0,3 | 7,4 | 4,8 | -3,4 | -18 |
| Bloomberg EuroAgg Total Return | 3,3 | 0,7 | 0,4 | 6 | 4 | 2,9 | -14,1 |
However, an investment maxim says that past performance does not predict future returns, so the big question is: what are they expected to do in the next few years?
In principle, there is nothing to prevent green bonds from continuing to provide high returns to investors. Moreover, more and more companies are joining a market that currently already has more than two trillion in assets, with increasingly solid projects, better resources and cheaper technologies. In other words, they are more profitable. For all these reasons, the future of green bonds is very optimistic both for continuing growth and for offering attractive returns, in fact, that is one of the reasons why more and more investors are approaching this product.
How to choose a green bond?
Despite the good profitability data for green bonds, both past and expected in the future, not all of them are equally efficient. After all, every project is different, which implies not only a different target in each case, but also in terms of profitability. Since this is such a huge and rapidly growing market, it is useful to have a small mental framework with which to select those products that are most suitable for us.
In this case, obviously, what should take precedence is:
- The objective of the project: the wide variety of projects allows us to select the one with which we most identify in terms of sustainability.
- Profitability: we must not lose sight of the fact that it is an investment, so we must also consider the returns that any project will give us.
The role of roboadvisors
When investing in green bonds, a good idea is to use so-called roboadvisors. Simply put, these are automated managers that allocate investment portfolios based on one’s risk profile and are managed by algorithms, automation, and the supervision of a team of experts.
In the case of investing in green bonds, roboadvirsors will help you, as it will propose a diversified portfolio that not only adapts to your risk profile, but also to your preferences in terms of projects to invest in. Moreover, it will do so at a reduced price, which means that you will be able to get a higher return than using other investment services.
Invest in green bonds through inbestMe
Among the platforms where you can invest in green bonds, inbestMe stands out, a roboadvisors that has been present in Spain for more than five years and has won several awards for its great work and technological developments. In this case, the firm has a wide range of SRI products, socially responsible, which also includes green bonds among the assets that make up the portfolios of its interested users. In addition to its intuitive platform, inbestMe stands out for its low prices and transparency, since at all times you know where your money is invested and what it generates.
If you want to start investing in green bonds or continue with it and want to do it in a very comfortable way, at a reduced cost and with a wide variety of products dedicated to green bonds, click here and discover everything you can do with inbestMe.
