Green Bonds: Investing for Profit and the Planet

by KarNivesh | 13 August, 2025

The global financial landscape is undergoing a green revolution, and at the heart of it are green bonds—investment instruments that deliver both solid returns and environmental benefits. In 2024 alone, global green bond issuance crossed ₹91.3 lakh crore, proving that financial growth and sustainability can go hand in hand. Whether you are an experienced investor or just starting, green bonds offer an opportunity to align your portfolio with eco-friendly values.

Solar panels and wind turbines in a green field near a city, symbolizing renewable energy projects often funded by green bonds.

What Are Green Bonds?

Green bonds function like regular bonds—you lend money to a government or corporation, they pay you interest, and return your principal at maturity. The difference? Green bonds come with a legal commitment that funds will be used exclusively for environmental projects.

They follow the Green Bond Principles established by the International Capital Market Association (ICMA), ensuring money supports legitimate projects such as solar farms, wind power, clean transportation, and energy-efficient buildings.

A Booming Market

From almost nothing in 2008, cumulative green bond issuance reached ₹514.6 lakh crore by December 2024. Key highlights:

• Annual issuance hit ₹93.4 lakh crore in 2024.

• Projected to reach ₹86.8 lakh crore by 2032, with a CAGR of 10.3%.

• Green bonds account for 57% of all sustainable bond issuances.

• Over 93% follow ICMA standards.

This growth reflects the urgent need for climate financing—₹348.6 lakh crore annually by 2050 to achieve net-zero emissions.

A LEED-certified green building with extensive vertical greenery highlights sustainable architecture and environmental responsibility.

How They Generate Returns

Green bonds provide:

• Regular interest (2–8% annually)

• Principal repayment at maturity

• Tax benefits like exemptions and credits

A unique factor is the “greenium”, where green bonds often have slightly lower yields than traditional bonds due to high demand. Still, in 2024 they outperformed conventional bonds by nearly 2%, and ETFs like iShares USD Green Bond ETF (BGRN) delivered 6.67% one-year returns.

Where the Money Goes

Green bonds finance eight main project categories:

1. Renewable Energy (35%) – Solar farms, wind turbines, hydro plants.

2. Energy Efficiency (20%) – Better insulation, LED lighting, efficient industrial systems.

3. Green Buildings (15%) – LEED-certified offices, eco-friendly hospitals, sustainable housing.

4. Clean Transportation (12%) – Electric buses, trains, EV charging stations.

5. Water & Waste Management – Recycling plants, wastewater treatment.

   
   

Breakdown of green bond project categories showing where green bond proceeds are typically allocated

Major Players

• Governments: India’s 2023 sovereign green bond raised ~₹16,600 crore for renewables; Canada’s ₹3.32 lakh crore bond funded nuclear and clean transport; Hong Kong issued the first tokenized government green bond worth about ₹23 lakh crore .

• Corporations: HSBC funds renewables and green buildings; Tesla uses bonds backed by solar leases; utilities modernize grids and expand renewable infrastructure.

• Multilateral Banks: The World Bank pioneered green bonds in 2008 and development banks have funded ₹19.75 lakh crore in climate finance (2016–2022).

Green vs Traditional Bonds

Similarities: Same credit risk, interest structure, and minimum investment.Differences:

• Funds are exclusively for environmental projects.

• Enhanced transparency via impact reports.

• Potential tax benefits.

• Slightly lower liquidity in secondary markets.

How to Invest

Direct Options:

• Government Green Bonds – e.g., India’s Sovereign Green Bonds (min. ₹10,000).

• Corporate Bonds – Via brokers, min. ₹83,000–₹8.3 lakh.

• Municipal Bonds – Often tax-advantaged.

Funds:

• ETFs: iShares USD Green Bond ETF, Goldman Sachs Global Green Bond UCITS ETF, Amundi Global Aggregate Green Bond UCITS ETF.

• Mutual Funds: Nuveen Green Bond Fund, Mackenzie Global Green Bond Fund, CI Global Green Bond Fund.

Risks to Consider

• Credit Risk – Dependent on issuer’s financial strength.

• Interest Rate Risk – Prices fall when rates rise.

• Liquidity Risk – Fewer buyers in secondary markets.

• Currency Risk – For foreign bonds.

• Greenwashing – Some issuers may exaggerate environmental impact.

• Project Risk – Delays or regulatory issues can affect returns.

Future Trends

• Tech Integration – Blockchain and tokenized bonds (e.g., Hong Kong).

• New Bond Types – Transition bonds, blue bonds, and nature-based solution bonds.

• Regulatory Push – EU taxonomy, climate disclosure mandates, and green finance incentives.

• Market Growth – Moody’s forecasts ~₹83 lakh crore annual sustainable bonds through 2025; emerging markets like Qatar, Egypt, and Chile expanding issuance.

Tax Benefits

• Municipal Bonds: Tax-free interest for local residents.

• Tax Credit Bonds: Credits instead of interest payments.

• Direct Subsidies: Boost issuer’s ability to pay.

• India: TDS exemption up to ₹10,000 annually per issuer.

Key components of clean mobility in a sustainable city, including electric vehicles, public transport, solar energy, and bike-friendly infrastructure.

Building a Strategy

• Allocation: 10–20% of bond portfolio for eco-focused investors; 5–10% for conservative portfolios.

• Due Diligence: Verify certification, assess credit rating, check use of proceeds, understand tax rules.

• Monitoring: Review annual impact reports and ESG scores.

Green bonds are more than an investment—they’re a direct contribution to global sustainability efforts. With consistent performance, tax advantages, and growing demand, they offer a win-win for investors and the planet. The market’s expansion, backed by both governments and corporations, signals that green bonds are becoming a mainstream investment choice.

By investing in green bonds, you’re not just seeking returns—you’re funding the renewable power plants, clean transport, and sustainable infrastructure that the world urgently needs. In today’s markets, the most profitable investments might be those that help protect our future.