What is a major characteristic of green bonds?

A major characteristic of green bonds is that they are specifically aimed at financing environmentally sustainable projects. This focus allows issuers to raise funds exclusively for initiatives that contribute positively to environmental goals, such as renewable energy, energy efficiency, pollution prevention, and sustainable land use, among others. The capital raised through green bonds is typically earmarked for projects that contribute to tackling climate change and enhancing environmental sustainability.

This differentiation is crucial in the financial landscape as investors increasingly seek to align their investments with their values, particularly regarding sustainability. Green bonds also often come with frameworks or standards, like the Green Bond Principles, which help ensure transparency and accountability in the use of proceeds. This reinforces the integrity of the green bond market and encourages more investment in sustainable projects.

On the other hand, the other options do not accurately represent the essence of green bonds. Government subsidies are not a requirement or defining characteristic of green bonds, and negative environmental impacts are contrary to the purpose of these financial instruments. Additionally, while green bonds can come with reporting obligations to ensure the funds are used appropriately, the assertion that they do not require specific reporting overlooks the increasing expectations for transparency from both issuers and investors in the sustainability space.