Green bonds or green bondsare financing that have been regulated in OJK Regulations or POJK Number 60/POJK/207.

The definition of green bonds is debt securities in which the proceeds from the issuance are used to finance part or all of Environmentally Friendly Business Activities (KUBL).

What is meant by KUBL is a business activity or other with the aim of protecting, repairing, or increasing the quality or function of the environment.

Several forms of KUBL funded by green bonds are as follows.
• Renewable energy
• Energy efficiency
• Sustainable land use
• Sustainable water and wastewater management
• Sustainable management of living natural resources
• Conservation of terrestrial and aquatic biodiversity
• Environmentally friendly transportation
• Pollution prevention and control
• Climate change adaptation
• Business activities and/or other activities with an environmental perspective

Companies or issuers in the KUBL field generally have businesses that are still fairly new, ongoing, and/or have been completed.

Later, KUBL company projects will be funded at least 70% from green bonds . However, before getting funding, companies need to comply with the following conditions.

• Meet the requirements for issuing bonds according to IDX regulations Number 1-B of 2020
• Real funds are used for the financing of KUBL which is proven by the opinions or evaluation results of environmental experts
• Obtain proof of competence from an environmental expert

Green Bonds in Indonesia

You may be curious about how the real practice of Indonesian green bonds is. In Indonesia alone, green bonds are financing that began to be mass issued in 2018. Some explanations regarding green bond practices are as follows.

• 1. Issuance by the Government
  
  The Indonesian government once issued green bonds for environmentally friendly financing worth USD 1.25 billion or around 18.3 trillion in March 2018.
  
  The green bonds are in the form of green sukuk which essentially have a similar process and tradability, such as in determining the coupon, maturity , and issuance price.
  
  However, sukuk is proof of ownership using sharia law whose instruments are equity or asset-based, while bonds are structured based on debt.
  
  Sukuk holders take partial ownership of the underlying assets in order to receive a share of the profits from those assets.
  
  Meanwhile, the bondholders act as lenders. In this case it means allowing for regular interest payments.
  
  Following the issuance of green sukuk in 2018, the government issued another green sukuk because it received a positive response.
  
  In February 2019 it was oversubscribed by 3.8 times and the publication in June 2020 was oversubscribed by 7.37 times.
  
  Indonesia is the first green sukuk issuer in the world. In fact, Indonesia is also the leading green sukuk issuer because the government issues 54% of the world´s green sukuk.
  
  However, most are issued as global green sukuk and bought by international investors. Only 15% of this amount was issued as green retail sukuk .
  
  Thus, access to the domestic market is still limited in purchasing these environmentally sound products.
  
  Therefore, until now the government continues to strive for the presence of green sukuk in Indonesia based on sharia principles with affordable orders and short tenors.
• 2. Issuance by the Company
  
  Until December 2020, the Climate Bonds Initiative (an international organization that mobilizes global capital for climate action) recorded five green bond issuances by companies in Indonesia.
  
  However, among these issuances, only those issued by PT Sarana Multi Infrastruktur (Persero) or PT SMI were sold to the domestic market.
  
  PT SMI is a State-Owned Enterprise under the Ministry of Finance of the Republic of Indonesia.
  
  The green bonds issued worth IDR 3 trillion with an emission value of IDR 500 billion.
  
  Several sectors allocated by PT SMI from green bonds are renewable energy, environmentally friendly transportation, and clean water management.
• 3. Issuance by the Banking Board

Benefits of Green Bonds

As for investors, the advantages of investing in green bonds are as follows.

• 1. Supporting Environmentally Friendly Projects
  
  Through the issuance of green bonds , the government encourages investors to contribute to the environment.
  
  As previously mentioned, the funds raised from these bonds will be used for green projects in Indonesia.
• 2. Get Passive Income
  
  In bond investment, every month investors will receive returns in the form of coupons until maturity.
  
  In general, the amount of the coupon refers to the benchmark interest rate.
  
  If you invest in green bonds with a floating rate coupon type , the potential yield will be higher than the coupon at the time of release when the benchmark interest rate increases.
  
  In addition, investors also have the potential to get capital gains. Therefore, investors often optimize bonds as an alternative source of passive income.
• 3. The Right Choice for Beginner Investors
  
  Another advantage of green bonds is that they have a relatively short tenor, which is around 2-5 years.
  
  That way, the shorter the maturity period, the smaller the potential risk.

Source: www.ocbcnisp.com