What are sustainable finance product types?
Sustainable finance comes in many shapes and forms. Despite the myriad of financing options, the predominant financial instruments are in the form of debt and equity, detailed below:
I. Green equities: shares of equities/stocks invested in companies and/or funds promoting positive environmental outcomes
a. Green companies: investments in shares of companies advancing positive environmental goals, such as renewable energy or electric vehicle firms
b. Green funds (mutual and/or exchange traded funds): investments in funds indexed or selected for companies with positive environment footprints, such as funds with only peer leading companies in terms of carbon reduction
II. Green debt: debt instruments aimed at projects and/or companies combating climate change and environmental degradation.
a. Bonds: credit issued in public markets to finance projects aimed at positive environmental change.
i. Green and sustainable bonds: bonds invested in projects with intended environment goals, such as bonds directed for energy building retrofits
ii. Sustainability-backed bonds: bonds invested in projects where funding is based on achieving certain sustainable linked goals by a certain deadline, such as bonds directed towards renewable energy infrastructure to meet energy consumption reduction goals
b. Loans: credit issued in private markets aimed at positive environmental change.
i. Green and sustainable loans: loans invested to stimulate development of environmentally-friendly services and products, such as energy-saving home-improvement loans
ii. Sustainability-backed loans: loans invested in projects where funding is based on achieving certain sustainable linked goals by a certain deadline, such as energy-saving home improvement loans with covenants based on meeting energy reduction goals.