Green Bond is a type of fixed-income instrument specifically issued to raise funds for projects that have positive environmental or climate benefits. These projects typically focus on areas such as renewable energy, clean transportation, sustainable agriculture, water conservation, and pollution control. The key feature of a green bond is that the proceeds are exclusively used for eco-friendly initiatives, making it an essential tool in promoting sustainable development.

Issued by governments, corporations, and financial institutions, green bonds function much like traditional bonds. Investors lend money to the issuer in exchange for periodic interest payments (coupon) and the return of principal at maturity. What differentiates them is their environmental focus and transparent reporting on how funds are utilized.

Example: If a government issues a ?1,000 crore green bond to fund a solar power plant, the raised capital must be used strictly for that purpose. Investors supporting such bonds are not only earning financial returns but also contributing to reducing carbon emissions.

Benefits of Green Bonds:

• Encourage investment in sustainable and climate-resilient infrastructure.
• Enhance corporate reputation by demonstrating environmental responsibility.
• Offer diversification opportunities to investors seeking ESG (Environmental, Social, and Governance) aligned portfolios.

Challenges: The main challenges include ensuring transparency, preventing ìgreenwashingî (false environmental claims), and maintaining robust monitoring mechanisms.

In conclusion, Green Bonds represent the intersection of finance and sustainability, enabling investors to support environmental goals while earning stable returns. With increasing global focus on combating climate change, these instruments are expected to play a growing role in shaping a greener financial ecosystem.