Wednesday, June 10, 2015

New Sustainability Focused Financial Instruments

Investors have a wide assortment of new financially responsible instruments. Sustainability investment options run the gamut from simple things like energy conservation projects to complex multi-stakeholder initiatives that target social and environmental improvements. Responsible investing, impact investing, socially responsible investing covers the full range of asset classes in many sectors. This includes instruments that combat climate change, encourage conservation and support social causes. Some examples include green bonds, climate bonds, yield cos, conservation investment and natural resources

One of the most popular investments in 2015 are green bonds. They are specifically designated for the environment and the proceeds are used to fund environment-friendly projects. These tax-exempt assets are issued by federally qualified organizations and/or municipalities for the development of environmentally friendly projects like clean water, renewable energy, energy efficiency, habitat restoration, acquisition of land or mitigation of climate change.

A climate bond is an extension of the green bond concept. Some use the terms green bonds and climate bonds interchangeably while others make the distinction between the two. In the latter case Green bonds raise financing for an environmental project and climate bonds raise finance for investments in emission reduction or climate change adaptation. Climate bonds are fixed-income financial instruments (bonds) linked in some way to climate change solutions.

A yield co is a publicly traded company that is formed to own operating assets that produce a predictable cash flow. They separate volatile activities (e.g. R&D, construction) from stable and less volatile cash flows of operating assets which can lower the cost of capital. Yield cos are expected to pay a major portion of their earnings in dividends, which may be a valuable source of funding for parent companies which own a sizable stake. Yield cos are commonly used in the energy industry, particularly in renewable energy to protect investors against regulatory changes

A green mutual fund or green exchange traded fund is a broad collection of environmentally friendly stocks that are pooled together. This offers a way to diversify asset ownership thereby distributing the risks associated with owning a single stock.

Conservation investments, also referred to as conservation impact investments, are intended to return principal or generate profit while driving a positive impact on natural resources and ecosystems. This can include investments in water like watershed protection, water conservation, stormwater management, and trading in credits related to watershed management.

Natural resources are another asset class that can help support the environment.Conservation investing could also include sustainable food and fiber production, including investments in sustainable agriculture, timber production, aquaculture, and wild-caught fisheries. Finally conservation investing could also include habitat conservation, shoreline protection, emissions reduction from deforestation and degradatio. This can include investments that protect shorelines, reduce emissions from Deforestation and Degradation (REDD+), land easements, and mitigation banking.

Related
Green Finance Goes Mainstream in 2016
Green Bonds Emerging as a Major Force in Green Finance
The Green Climate Fund Comes of Age
The Climate Investment Fund's Low Carbon Development
IDB to Double Climate Related Projects
World Bank to Finance More Renewables in the Developing World
Innovative Solar Financing Instruments
Drivers of Green Investment Growth
Opportunities in Sustainability Finance Highlighting Renewables & Energy Efficiency
The Panama Papers Highlight the Need for Sustainability
A World Bank Action Plan to Combat Climate Change
European Commissioner for Climate Action Urges Development Banks to Divest from Fossil Fuels
A Large and Growing Chorus is Calling for an End to Fossil Fuel Subsidies

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