Green Bonds vs. Traditional Bonds: Key Differences for Portfolio Allocation

The bond market is evolving rapidly as sustainability becomes a global priority. Green bonds, first introduced by the European Investment Bank in 2007, represent a specialized segment where proceeds are exclusively directed toward environmentally beneficial projects. Unlike traditional bonds that fund general operations, these instruments channel capital specifically into initiatives supporting the transition to a net-zero economy.

Investors now face a strategic choice between conventional fixed-income securities and their green counterparts. The latter offer dual returns—financial yields coupled with measurable environmental impact. Market growth suggests institutional capital is increasingly flowing toward this sustainable debt class, though liquidity and pricing dynamics differ from traditional bonds.