The Future of Green Bonds

New Report at COP21 highlights successful future for Green Bonds.

Green Bonds a key way for municipalities and others to finance infrastructure upgrades – water, energy and transportation. They are a win-win, as private sector companies can get paid in months for projects that will be returning revenue for years. The income is derived from a variety of sources, including the output of clean energy from wind, solar or hydro, or the savings from more efficient clean water or transportation. For many municipalities, caught between rising demands on revenue and regulations to decrease pollution, can use such bonds to implement measures that would otherwise become a burden on taxpayers. Past years have seen the rapid growth of a Green Bonds and Climate Bonds market as a mechanism to tap the global bond market to finance solutions to climate change.  This year, $40 billion of Green Bonds have been issued, topping the $37 billion of 2014, far above the $11 billion in  2013.

Driving Sustainable Global Markets

At COP21 in Paris, twenty-seven (27) global investors, representing over $11.2 trillion of total assets under management, issued a "˜Paris Green Bonds Statement,"™ (PGBS). Signatories committed to support policies that drive the development of long term, sustainable global markets in green bonds as part of climate finance solutions. Working through bodies like the Climate Bonds Initiative, as well as governments, development institutions, cities, commercial banks, NGOs and others, the signatories are committed to working to "grow a large and robust market that makes a real contribution to addressing climate change."The The Paris Green Bonds Statement calls on;

  • Industry experts and stakeholders: To develop clear standards for the climate change impacts and benefits of bond financed projects;
  • Bond Issuers: To ensure transparency around the use of bond proceeds and their impact;
  • Governments: to develop projects that can be financed by green and climate bonds.

The PGBS was coordinated by the Climate Bonds Initiative. Climate Bonds CEO, Sean Kidney, said: "Enormous opportunity exists to deploy green bond financing, to renew existing, ageing urban infrastructure and also in emerging markets and economies that will be building new energy and urban networks in the coming years. The one hundred and eighty-five Intended Nationally Determined Contributions (INDC) on the table in Paris are one of the greatest achievements on the COP21 process.  They will need climate financing to help reach their expressed goals and objectives. The Paris Green Bonds Statement reflects widespread institutional investor views that green and climate bonds have a part to play in sustainable and responsible investment to address climate change. "

Green Bonds Guide

Climate Bonds and UNEP Inquiry have launched Scaling Green Bond Markets - Guide for the Public Sector during a COP21. The Guide is the result of a partnership between the Climate Bonds Initiative and the UNEP Inquiry into the Design of a Sustainable Financial System and contains a range of specific actions for policy makers in both developed and developing economies. The Guide contains three broad categories of recommendations on green bond development for public sector policy makers.

  • Fundamental actions: establishing a green project pipeline; strengthening local bond markets; strategic public green bond issuance and developing green standards.
  • Proven Support Tools: strategic public green bond investment; credit enhancement; tax incentives and developing instruments to aggregate assets and structure risks.
  • Innovative Additions: adjusting risk weightings for green investment and preferencing green investments in central bank operations.

Detailed action plans & international best-practice examples on how to grow green bond markets are included to assist in policy development. The application and mix for each country will depend on the specific macroeconomic context and policy priorities. The findings of this report will also feed into an OECD report on green bonds, to be launched in 2016, and country-specific policy reports under development by the Climate Bonds Initiative.

Nick Robins, Co-Director of the UNEP Inquiry, said: "The potential opportunity of the green bond market has caught policy makers' attention. There are increasingly examples of governments moving from interest to action. China's central bank has published a range of ambitious policy proposals for green bonds, with official green bond guidelines launching soon. India's capital markets regulator SEBI just announced green bond guidelines. In the EU, supporting green bond standards is included in Capital Markets Action Plan."

Mr. Kidney added: "This guide can help the public sector in translating aspects of their national INDC objectives into climate finance outcomes. Adding green bonds into the climate finance mix can help the shift of capital to low carbon projects, infrastructure and climate resilient development. Credible, robust and liquid green bond markets can only accelerate the investment directions that INDCs in part, require, to meet individual country targets."

About Climate Bonds Initiative: The Climate Bonds Initiative is an investor-focused not-for-profit, promoting large-scale investment in the low-carbon economy. For more information please visit climatebonds.net. A copy of Scaling Green Bond Markets - Guide for the Public Sector is available here.

About the Paris Green Bonds Statement: The PGBS builds on earlier investor statements calling for increased use of green bonds in climate finance, actively policy by governments and increased participation by investors and stakeholders to build deep, liquid and robust green bond markets. For the full  list of signatories, click here.

About UNEP:  The United Nations Environment Programme (UNEP) is the leading global environmental authority that sets the global environmental agenda, promotes the coherent implementation of the environmental dimension of sustainable development within the United Nations system and serves as an authoritative advocate for the global environment. For more information, click here.