Giving Compass' Take:
- Gillian Parker, writing for Eco-Business, explores the green bonds and how they can help finance climate projects to reduce carbon emissions.
- How can donors explore the potential of green bonds? Where are there possible pitfalls?
- Learn more about green finance.
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Green bonds are used by governments, banks, municipalities or corporations to raise cash for new or existing projects that are meant to have positive environmental and climate impacts. Bonds can cover energy, water management, building construction, water, land use and transport.
Projects might be specifically aimed at energy efficiency, pollution prevention, sustainable agriculture, fishery and forestry, the protection of aquatic ecosystems, clean transportation and sustainable water management.
Some economists speculate the potential for issuances related to hydrogen or carbon capture, utilisation or storage, as well as new technologies that will increase emission efficiency in a broader range of industrial processes.
Trillions of dollars are needed to meet ambitious zero-emissions goals. The Asian Development Bank (ADB) estimated in 2019 that $1.5 trillion of annual investment is required for Asia to meet its demand for infrastructure which will rise to $1.7 trillion per year for sustainable, resilient infrastructure that is required to mitigate the impacts of climate change such as rising sea-levels and the increase in severe weather events. Green bonds will help bridge the finance gaps that cannot be covered by the public purse.
Here is the catch. There is currently no official overarching regulation that defines a green bond and the principles that do exist are voluntary rather than legally binding.
In practice, many issuers tend to follow the Green Bond Principles (GBP) endorsed by the International Capital Market Association. These are voluntary principles and guidelines that define eligible use and management of proceeds, the evaluation process for projects and the reporting to investors.
Read the full article about green bonds by Gillian Parker at Eco-Business.