What are the Pros and Cons of Green bonds?

As per OECD (2015),

Pros of Green Bond

  • Financial returns of Risk-adjusted can be balanced out by Investors with environmental benefits.
  • ESG requirements can be satisfied and mandating the green investments.
  • Risk assessment can be improved in an opaque fixed-income market with the use of reporting.
  • Pure-play, project and ABD can be used potentially to actively hedge climate policy risks including assets which are emissions-intensive.
  • “Climate action” has been recognized as a non-state actor by the UNFCCC.

Cons of Green Bond

  • Markets which are small and nascent with bond size smaller.
  • Unified standards are lacking that raises confusion.
  • Risk in the reputation is possible if question is raised for the integrity of green bond.
  • Legal enforcement is in a limited scope for the green bond integrity.
  • Complexity in research may arise due to lack in standardization.
  • Extra due diligence is needed which may not be fulfilled always.

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