Sliced: The Impact of Green Bonds on Climate Finance

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Green bonds stand out as a particularly effective solution when we consider the climate finance tools available to protect nature and finance eco-friendly projects.

Last year, we explored this topic in depth on our “Untangling Climate Finance” podcast, where we spoke with Sean Kidney, the CEO of the Climate Bonds Initiative (CBI). His insights highlighted green bonds’ significant role in the global economic system and the advancement of sustainability. We encourage anyone interested in green bonds to give it a listen.

Green bonds enable the funding of projects aimed at environmental preservation and climate resilience. Essentially, they are fixed-income securities where the proceeds are exclusively applied to projects that provide clear environmental benefits. They fund a wide array of projects across sectors important to building a sustainable future such as renewable energy, energy efficiency, clean transportation, water management, pollution control, biodiversity conservation, agriculture, and green buildings. Green bonds offer investors a unique opportunity to support environmental initiatives while potentially enjoying financial returns.

Generally, green bonds are rigorously structured around some key components that include the use of proceeds, project evaluation and selection, management of proceeds, and regular reporting.

To achieve this, many green bonds follow the Climate Bonds Standard (CBS) from CBI. The Climate Bonds Standard labels entities, assets, and debt instruments that meet strict scientific criteria to certify they align with the Paris Agreement’s 1.5°C warming limit. Globally, bond issuers, governments, and investors use this scheme to prioritize investments that actually address climate change. Aside from CBI, other green bonds adhere to the Green Bond Principles set by the International Capital Market Association (ICMA) to help make sure they remain credible tools for sustainable financing.

Since its inception in 2007, the green bond market has experienced explosive growth. In 2023, sustainable bond issuance surpassed the trillion-dollar mark, driven by record green bond sales, according to data compiled by Bloomberg. Although 2023, was not a record year (that title goes to 2021 with $1.1 trillion in issuances), it did set a new high for green bond sales by corporations and governments, which totaled $575 billion.

So far in 2024, $460 billion in green bonds have been issued, according to CBI. The largest green bond sale in the first half of the year was from the Italian government, issuing €9 billion in May. Italy plans to use the funds to finance public expenditures aimed at achieving environmental goals under the EU Sustainable Finance Taxonomy with a specific focus on climate change mitigation and adaptation, the sustainable use and protection of water and marine resources, a transition to a circular economy, pollution prevention and control, and the protection and restoration of biodiversity and ecosystems.

Earlier this year, Japan debuted its green transition bond with three transactions totaling over $12 billion which is part of a plan to increase issuance over the next decade. The proceeds will fund the Green Transformation (GX) program, with 55.5% allocated to research and development of renewable energy technologies, hydrogen use in steelmaking, and other climate technologies, and 44.5% directed toward subsidies for electricity storage, battery manufacturing, energy efficiency in buildings, and other low-carbon initiatives.

Other major green bond issuers, including France, Germany, Australia, Canada, and the UK, have collectively contributed over $140 billion in green bonds from January to June of this year, making government bonds the leading sector in green bond issuance during this period. All of this signals continued expansion as investors increasingly align their financial goals with environmental values.

The future of green bonds appears to be greening. As the world continues to face the challenges of climate change, and governments and corporations deepen their commitment to addressing these challenges, green bonds are in a position to play a large role in climate finance and mobilizing the capital needed to protect and improve our relationship with nature.

Climate Week NYC is coming up! The event this year runs from September 22 to 29.

Sean will be there from September 22 to 25 to attend a number of events and meetings.

On Monday, September 23, he is part of an organizing committee for an all-day event – Catalyzing Carbon Finance for High-Quality NCS Projects – with American Forest Foundation (AFF), The Nature Conservancy (TNC), Business Alliance to Scale Climate Solutions (BASCS), and the Symbiosis Coalition.

On Tuesday, September 24, he will attend the Climate Group’s event – $200 Trillion and Beyond: How Can Catalytic Capital Address the Missing Climate & Nature Trillions? 

On Wednesday, September 25, he plans to attend the Equal x Fenwick x Mercury event – 2024 Climate Capital Summit — in the morning, and the Sierra Club’s event – Shifting Trillions Forum: Cutting-Edge Tools for Foundations and Institutional Investors – in the afternoon. He will fly to London the evening of the 25th.

If you want to connect for a meeting in NY, email him at spenrith@gordianknotstrategies.com.

Also, CTVC built an amazing open list of all the events. You can check it out here.

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