Most mainstream investors like going green as long as they don’t have to pay a premium. That reasoning helps explain the crossover success of green bonds, high-grade fixed-income securities whose proceeds fund projects that fight climate change. In February, International Finance Corp., the Washington-based World Bank Group’s private sector division, launched its latest green bond offering — at $1 billion, the market’s biggest yet. The three-year, triple-A-rated bonds, underwritten by Citigroup, J.P. Morgan and Morgan Stanley, were offered at a yield 15 basis points higher than comparable U.S. Treasuries.

Asset manager BlackRock bought its first green bonds in April 2010 and was among the 56 investors in the IFC issue, which was 80 percent oversubscribed. The main driver of $3.8 trillion BlackRock’s investment in green bonds is client demand, largely from corporate and public institutions, says Ashley Schulten, a New York–based director at the firm and a member of its global rates trading team. “There was a little push-back initially because clients thought they might be more expensive than other bonds of similar names, but so far they have not been,” Schulten notes.

Other investors in the IFC issue included the California State Teachers’ Retirement System; St. Paul, Minnesota–based multinational 3M Co.; and New York–based financial services firm TIAA-CREF. “We wanted to bring a deal that was sufficiently liquid,” says Benjamin Powell, senior financial officer in IFC’s treasury department. “Investors keep telling us, ‘We’re very interested in this product, but we want to know that there’s a secondary market with an option to sell as well as to buy.’ ”   The high level of interest gave IFC confidence to push ahead with such a large issue, Powell explains. For the next few years, he says, the division will aim for an annual $1 billion green bond offering.

Launched by the World Bank in late 2008 with help from Sweden’s Skandinaviska Enskilda Banken, green bonds finance climate-friendly projects ranging from wind and solar power to sustainable forestry and carbon capture and storage. Over the past 18 months, the market has nearly doubled, from $5 billion to some $9.5 billion, according to SEB. Issuers that have used the World Bank’s original design include the European Investment Bank, the African Development Bank and the Nordic Investment Bank. The Export-Import Bank of Korea’s recent green bonds, rated Aa3 by Moody’s Investors Service, are the first such products without a triple-A rating.