We thought we had bought our first bond a couple weeks ago. But after some digging this turned out to not be (completely) true. The Dutch term for the product we bought is an “obligatielening”. An “obligatie” is a bond. A “lening” is a loan. So what did we get, a bond or a loan? Either way, we did some ethical investing!
Sustainable Bonds vs. Loans
When I started to write this post I did not have much knowledge about bonds. Why not, because we don’t own any. Why don’t we own any, because the return on investment is usually too low for us. We are happy to take on more risk and in return have the chance of a higher reward. We have time on our hands, so let’s use that. That is why we are primarily invested into dividend stocks, index funds and real estate.
But what is a bond? The picture below gives a nice simple overview of the difference between a bond and a loan.
Reading the prospectus of the financial product we were invested in, it appears that it is transferable (with limits), but it won’t be traded on any financial market. In short, it looks to be more like a loan than a real bond. For those interested, there are various sustainable bonds out there in the market. The post give you some examples.
Sustainable Investment Loans/Bonds
All this talk about FIRE and Investment Ethics a couple weeks ago, and than this came by (Karma anyone?). Our energy provider is one of the more sustainable in the Netherlands, and they regularly come up with sustainable projects to invest in. If we can make a (small) environmental difference and invest some money at the same time, we might be interested! It all depends on the project specifics and the projected return on investment.
A couple of weeks ago we purchased 8 “wind” participations (€55 each) with our energy provider. They will be using the proceeds to construct a new wind turbine. These wind participations will “generate” a minimum guaranteed 250kWh each for the next 5 year. The power production is taken from our usage and if we use less then we get the difference paid out. Return on investment is up to about 5% per year on average, not too bad eh? And we now know that every kWh we use will be sustainably produced. Nice win-win here.
Anyhow, what about that other investment we were looking at? This sustainable energy project involved the placement of close to 9.000 solar panels on the top of the Nissan production facility at the Port of Amsterdam. For this investment, they needed money. Part of this money is collected via a crowdfunding platform dedicated to sustainable energy projects. The remainder is financed by a “green projects” funds from a Dutch Bank (ASN Bank for those interested).
We looked that terms, the return on investment and decided to invest a total of €1.000 into this project for the next 15 years. Making this the first sustainable loan (not bond!) we own (or the second? technically the earlier mentioned wind participations are a loan too).
Return on Investment
Now, because this is an investment into solar power, the return on investment will fluctuate. This is the result of environmental factors (power production) and economic factors (electricity price, system performance/maintenance). Based on the provided summary and prospectus this is what we can expect (we get a “bonus rate” because we are also a client of the energy provider associated with this project).
In short, is the electricity price stays about the same at round €0.058 per kWh (the core energy price before taxes) and we have an average amount of sunshine, we should get about 4.2% over a 15 year period. That’s not bad actually. “Worst case” (low sunshine hours and low energy price) we still make 3.4%. For a sustainable project, this is pretty good! Most sustainable projects make a whole lot less (there are a few notable exceptions).
However, there are more risks, like default of the main user (Nissan) or solar operator, storm of fire damage, equipment malfunction, etc. All of this will result in risks to the project, and in lesser amount to you as the loan provider. Insurance is included for the project, but I could not quickly find it production losses are included here as well. As with ANY investment, there are risks.
Process and Maturity
What are the next steps. Well the crowdfunding project raised over €0.5M within a couple of days. That’s impressive! We also already transferred the funds. The plan for the future is as follows.
In short, the construction of the solar project will commence on February 2018 (funds will formally be transferred too). First power production is scheduled for late April 2018. The first (combined) interest payment is scheduled for July 21, 2019. Then we get paid every year around February 22 and we receive the original deposit back in early 2033.
Do you own bonds (the real deal!)? Or do you also have invested some of your money into sustainable projects? How well is that going?