A new kind of bond is enlisting Americans in the fight against climate change

Like war bonds during WWI and WWII, Green Liberty Bonds are easy to buy and divvied up in small amounts.

(Video: Illustration by Emily Sabens/The Washington Post; iStock)
9 min

Last month, I bought my first Green Liberty Bond.

Modeled on the war bonds that raised billions of dollars to fight World War II, my Green Liberty Bond aims to win the fight against climate change — at least in Connecticut.

I invested a modest $280 with the Connecticut Green Bank. My money will be rolled into a much larger fund started by the state to reduce the risks for banks providing rooftop solar loans to homes and small businesses.

Those thousands of new small solar energy systems generate renewable energy credits, which Connecticut utilities purchase to meet clean energy mandates. The Connecticut Green Bank then uses this revenue stream to issue even more Green Liberty Bonds.

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In the end, a small pool of public money turns into a much bigger pool of private funds. Then the process begins again. A year from now, I expect to get my money back, plus 5.25 percent.

The goal, says Bryan Garcia, CEO of Connecticut Green Bank, is to enable ordinary citizens to join the fight against climate change, like the war effort of the 1940s. At the time, the government raised money by issuing war bonds. Small towns held rallies and roadside sales. Hollywood stars like Bette Davis and Rita Hayworth promoted them. Norman Rockwell and his “Four Freedoms” paintings made a 16-city drive to sell them. The gusher of cash funded everything from bombers to bullets.

The Connecticut Green Bank hopes its product, the Green Liberty Bond, becomes a financial concept adopted by institutions across the country. Like war bonds back then, they are designed for ordinary citizens. They’re easy to buy without a middleman and divvied up in small amounts.

They have competition. There’s no shortage of ostensibly climate-friendly funds to choose from. Climate index funds, and even green bond mutual funds are now on the market from established financial institutions such as Fidelity, Calvert and Pimco. But generally, the holdings are heavily weighted toward large corporations and governments. Figuring out exactly what’s in them and how the funds will be used is difficult for most investors.

In contrast, products like the Green Liberty Bond are designed to direct funds into a community with clear insight into the projects it supports. The rates are reasonable, with even above-average returns sometimes, and government backing can lower the risk. It’s a novel approach that, if replicated, could enlist millions of small investors to help achieve the nation’s renewable energy goals, advocates say.

To be sure, my purpose here is exploring how these types of bonds work, not providing financial advice. As with any investment, you should carefully look at green bonds and how they fit into your broader financial picture before putting your money in them. One advantage: You can invest as little as $100.

The big idea behind Green Liberty Bonds

For now, efforts like these are still tiny compared to U.S. war bonds. Between 1941 and 1943, the federal government raised about $3.2 trillion (in today’s dollars) from 85 million households, roughly half the country.

So far, the Connecticut Green Bank has issued about $43 million in green securities (bonds and shorter-term notes) since 2019. But Garcia argues green notes like mine prove even a small amount of capital can have tremendous impact. Since 2011, the bank, which receives some public funding but operates like an independent firm, has turned about $320 million in public money into about $2 billion in private clean energy investments. The bank says that has avoided emissions equivalent to 2.7 coal power plants operating for one year.

The response to Connecticut Green Bank’s offering suggests there’s pent-up demand for this kind of product. For its latest bond sale in January, like earlier ones, investors were turned away. “The general assumption is that markets are efficient, and private money will flow where there are inefficiencies,” says Garcia. “But the private markets don’t know there is an opportunity in small states like Connecticut. Green banks shout to the market that there is an opportunity to invest and achieve our local [environmental] policy objectives.”

What are green bonds?

States and cities are used to issuing bonds to fund all kinds of public projects. If San Francisco wants to build a subway, it might issue you a bond that pays 8 percent per year until 2033. Investing $1,000 today means collecting $80 every year for the next decade before the city pays you back. It’s a (relatively) safe way for investors to earn more interest than checking or savings accounts might offer, and for organizations to raise money.

Green bonds are different in that they contractually must deliver clear environmental benefits, although there is no universal definition backed by regulatory authorities. Greenwashing isn’t unknown. In a study in the peer-reviewed journal Review of Finance, researchers found that U.S. asset managers that signed on for the Principles for Responsible Investment, an ESG initiative, actually had worse ESG scores than those who didn’t. There is “a substantial disconnect between what institutional investors claim to do in terms of ESG and what they really do,” the authors wrote.

While some green bonds fail to live up to the name, studies suggest some can improve corporate environmental performance. Caroline Flammer of Boston University’s Questrom School of Business analyzed 147 certified green bonds. She found “corporate green bonds represent a powerful tool in climate finance to fight climate change — a tool that can be used by the private sector regardless of (the lack of) government actions.”

So what do green bonds fund? Almost anything that returns a profit and reduces emissions or addresses environmental problems. Banks, companies, governments and even nonprofit entities can issue them. Inclusive Prosperity Capital, a not-for-profit investment fund, for example, has a green loan program financing more than 40 types of projects, including home retrofits, air sealing, window upgrades, insulation, geothermal, solar and EVs. Others focus on sustainable agriculture, water conservation and transportation.

In the case of Green Liberty Bonds, all of the funding goes toward solar panels and energy efficiency. To persuade banks to make new clean energy loans for homes and businesses, the Green Bank agrees to absorb losses after the first 1.5 percent (up to a certain amount). Residents in low-income communities get priority when requesting loans.

How do I buy a green bond?

Investing directly in green bonds is not as easy as investing in the stock market. Mutual funds aggregate the more than $1.9 trillion in green debt that has been issued as of 2022 from at least 20 countries and many companies. But these tend to focus on massive project finance: multimillion-dollar renewable energy power plants or updating industrial infrastructure.

Few options exist for the ordinary citizen to directly finance climate infrastructure in their own community. “The challenge has always been that impactful projects and green investments have not been democratized in a meaningful way,” says Douglas Heske, the CEO of Newday Impact, a financial services company focused on environmental and social impact.

To buy a green bond of your own, you’ll need to do a bit of searching. The next Green Liberty Bond offering on Raise Green is scheduled for April. There are some other retail offerings. A foundation-funded project, AskSustainable, has catalogued 230 financial products totaling about $50 billion in capital from ETFs to notes to savings accounts. Each one offers detailed information about their financials and green benefits based on published documents and regulatory filings.

The website shows 21 climate-friendly notes (shorter-term fixed-income investments) financing everything from land conservation to renewable energy to economic development (for legal reasons, you must make purchases off the site at this time).

Since this is a relatively new market, you’ll have to read the fine print carefully. The Calvert Community Note, for example, offers a 2 percent interest rate over three years — and only directs a third of your investment toward sustainable energy and conservation.

“Every dollar that can be utilized for the climate is a dollar well spent,” says Trenton Allen, CEO of Sustainable Capital Advisors, which created the site. “You could say my $100 doesn’t matter, but it matters when we all do it.”

So I bought a Green Liberty Bond. What should I expect?

I had low expectations when I decided to purchase one of the Connecticut notes in January. Last year, I tried selling a California water district bond I inherited. It took several days and hours on a broker’s helpline to offload it. I’ll never do it again if I can avoid it.

But when I went online to buy a Green Liberty Note, I was pleasantly surprised. I logged into Raise Green, a crowdfunding platform that allows individuals to invest as little as $100 in everything from clean energy start-ups (rather risky) to bonds (mostly safe). It was relatively simple. I made an account, transferred $280 and the note, confirmed a few days later, was added to a program that has helped mobilize $1.3 billion for rooftop solar panels for about 46,000 households in Connecticut.

I’m quite confident I’ll get my money back. The Connecticut Green Bank isn’t lending out the money directly. It sweetens the deal for other banks, credit unions and financial institutions to lend to customers. The Green Bank has only had 10 loan defaults amounting to $330,000, a 0.03 percent default rate over more than $1 billion in financing, according to audited statements. No depositors have lost their money, and the bonds enjoy the backing of the state government.

My $280 might seem purely symbolic relative to the investment needed to decarbonize the global economy. But it’s also a down payment on a different future. If the green bond concept catches on, my bond might prove very valuable indeed.