You have a choice between two investment-grade bonds, both yielding a return commensurate with risk. One bond provides funding to projects that help avoid over 450,000 tons of CO2 emissions annually—equivalent to taking roughly 60,000 cars off the street—and the other bond provides no further information on the use of proceeds. Which one would you invest in?
Executive SummaryProceeds of green bonds go toward funding projects with environmental benefits, but the credit risk is still that of the issuer. Over the past 12 months, the green bonds market has grown considerably. At Zurich, this is viewed as an opportunity to achieve responsible investment objectives in the most important asset class for insurance investors.
Green Bonds Make Sense
When we started looking at the green bonds market at the beginning of last year, the question was very easy to answer. Of course we should go for the option that provides a tangible, measurable, positive impact on top of an attractive financial return—at least in principle. The more challenging question was how to do this in a structured way; in a way that fits our overall investment approach and strategy, and not just as an opportunistic, one-off investment.