In the municipal bond market, the issuance of green bonds has provided an attractive solution for investors interested in socially responsible investments while also receiving the tax-exempt income benefit municipal bonds offer. Franklin Templeton’s Municipal Bond team provides an overview of green bonds, including potential benefits and risk considerations.

In November 2008, the World Bank issued the first ever bond that carried the label ”green.”1 This marked the inception of the global green bond market—a market that is now over a decade old. In that bond issue, the World Bank defined its criteria for eligible green bond projects and provided a second party opinion to assure investors the proceeds would address climate change.2

Since 2008, green bonds and climate-aligned bonds have become a growing subset of the global fixed income markets. These bonds are distinguished by their use of proceeds, which must be deployed in a manner consistent with environmental sustainability.

Examples of projects funded by green bonds include investment in infrastructure for water and wastewater systems, renewable energy assets, and Leadership in Energy and Environment Design (LEED) certified buildings. The environmental benefits of such projects include water use efficiency, a reduction in carbon emissions and energy efficiency.

For investors, green bonds provide an opportunity to dedicate capital to projects and programs that have a defined environmental purpose.