These might be greenhouse gas emission reduction projects ranging from clean energy to energy efficiency, or climate change adaptation projects ranging from building Nile delta flood defences or helping the Great Barrier Reef adapt to warming waters.
[10] Climate and green bonds have now been issued by thousands of issuers around the world, including sovereigns, banks and companies of all sizes, and local governments.
Green bonds are loans issued in the market by a public or private organization to finance environmentally friendly activities.
[15] The Paris agreement on climate change highlighted a desire to standardize reporting practices related to green bonds, in order to avoid greenwashing.
This project promises an investment of 750 billion euros in grants and loans (at 2018 prices), by the European Commission, aiming to revive the post-covid-19 economy in the 27 EU member states.
In developing countries, green bonds are already financing critical projects, including renewable energy, urban mass transit systems and water supply.
[24] According to a report by the Climate and Development Knowledge Network and PricewaterhouseCoopers, a green bond market has three key benefits to a country and its environmental goals and commitments:[24] The European Investment Bank issued an equity index-linked bond in 2007, which became the first fixed income product among socially responsible investments.
A large number and broad range of projects and assets that contribute to achieving the 17 SDGs need this funding for their development and operations.
The Paris Agreement on climate change entered into force in November 2016, after 196 countries committed to reducing greenhouse gas emissions.
Significant quantities of finance are now needed to convert country commitments (Nationally Determined Contributions, NDCs) to implementation and a low-carbon, climate-resilient economy.
[36] Bank balance sheets can take only a proportion of the private finance needed so the capital markets have to be leveraged, along with other sources such as insurance and peer-to-peer.
According to the Climate and Development Knowledge Network, the demand for green bonds has grown quickly on the investor side, with asset owners and managers diversifying their investment portfolios and seeking positive impact beyond financial return.
[40] Despite the increased push for standardization, disparities persist in the issuance of green bonds, their post-reporting practices, and their alignment with issuer climate targets.
As a result, one key study found that green bonds predominantly serve short-term objectives, offering limited support for achieving long-term climate goals.
Additionally, there is a lack of detailed breakdowns regarding how the capital raised through green bonds is allocated to specific projects, highlighting the need for enhanced transparency and reporting practices.
The bonds proceeds would be allocated to initiatives meant to improve the efficiency of the company's oil and gas production operations.
[43] The non-governmental organization argued that even though the projects would reduce CO2 emissions, the company's sustainability strategy did not go far enough from an environmental perspective to classify it as green.
[44] More generally, the academic community and market participants have identified the susceptibility of voluntary green-labelling to greenwashing and adverse selection as a function of the perceived lack of regulatory oversight and the inherent, albeit anecdotal, capital arbitrage opportunity presented to some issuers through the green pricing premium, or "greenium".
[48] The solar bond authority was being used as part of the city's renewable energy program, administered by the San Francisco Public Utilities Commission, CleanPowerSF.
[49] In 2020, the UK's first ever local government green bond, for West Berkshire Council, closed after reaching its £1mn target five days early.