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Bridging the Climate Finance Gap: Green Bonds

Anna Creed — Standards Manager, Climate Bonds Initiative
Justine Leigh‐Bell — Director of Market Development, Climate Bonds Initiative


What’s needed?

The New Climate Economy report has estimated that USD 90 trillion will be needed for infrastructure investments over the next 15 years1,. To prevent dangerous levels of climate change and catalyse the transition to a low carbon economy—these investments need to be green!

“The historic agreement at COP21 in Paris saw countries recognise this; signing up to developing large scale infrastructure plans which will allow them to meet their emission reduction obligations. These plans represent the largest pipeline of projects requiring investment in history.”

At the same time, Paris also proved a watershed for institutional investors realising the inherent risks of financing stranded carbon intensive assets; the Chapter 11 bankruptcy of Peabody and Alpha coal in the US foreshadowing the wider implications of exposure to these assets. This movement culminated with 400 of the world’s largest institutional investors (representing USD 24 trillion in assets) calling for a strong global climate deal at COP21 in Paris2.

Bonds, loans and other securities can be used as a tool to restore, rehabilitate and conserve the environment whilst creating financial value through green infrastructure development. The level of risk–return certainty that bonds provide has meant that they have long been the instrument of choice to finance long term infrastructure investments. It thus makes sense to finance the huge green infrastructure pipeline with green bonds.

Green Bonds:
A Green Bond’s use of proceeds are allocated to environmental projects. There is some discussion within the industry as to what exactly constitutes ‘green’ use of proceeds. Our certification scheme sets out science based criteria to determine this.

Green Infrastructure
Infrastructure that in its nature or design, is compatible with a two degree world.

About the Climate Bonds Initiative

Climate Bonds Initiative’s mission is to mobilise the trillion-dollar bond market in pursuit of the transition to the low carbon economy. We are an investor focused NGO, providing clarity and transparency for institutional investors through our Climate Bonds Certification and Standards programme.

The standards are designed to bridge the gap between the supply of green infrastructure development plans required to meet national commitments under the Paris Agreement on one side, and investor demands for climate action on the other. On the sell side, the criteria are designed to provide issuers with a science based process to assess the climate impacts of projects to be funded by their bonds. This allows them to appeal to the growing number of investors who are investing exclusively in green assets. Whilst on the buy side, the criteria provide investors with an assurance mechanism to boost their confidence in deciding which investments can best drive the transition to a low carbon economy.

The green bond landscape is a small but growing proportion of the total $90 trillion global bond market and can be subdivided into three parts:

  1. (i) climate aligned bonds—do not carry a green label but fund low carbon projects and infrastructure
  2. (ii) self labelled green bonds
  3. (iii) Climate Bonds Standard certified bonds

We track the market development of all three categories.

Graphic for Climate Bonds Initiative

Climate Bonds Development of Sector Specific Standards

The Rockefeller Foundation grant directly supports our Climate Bond Standards work, specifically in developing sector-specific standards for investments in the Marine, Fresh Water and Land Use sectors. We have developed an umbrella Climate Bonds Standard which details common criteria that all certified bonds must satisfy. Sector specific criteria must then also be met depending on where the use of proceeds are to be deployed.

To get a bond certified, the issuer must contract one of the approved Climate Bond verifiers (including EY, Bureau Veritas and KPMG, amongst other) to produce a report assessing whether the bond meets all the relevant criteria. This report is then submitted to the Climate Bond Standards Board for approval.

What to Look For

Over the next 12 months, Climate Bonds Initiative will develop approved standards for the Marine, Hydropower, Land Use and Fresh Water sectors. We’ll be supporting capacity building efforts in the green bond markets of India, China and Latin America (amongst others). We also anticipate the flow of Climate Bond Certified Bonds to build on the USD 4.5 billion so far this year.

1. The New Climate Economy,. Economic Growth And Action On Climate Change Can Now Be Achieved Together, Finds Global Commission. 2014. Web.
2. Investor Platform for Climate Actions,. Now is the Moment. 2015. Web.

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