Bonds. Green Bonds: Financing a Sustainable Future with the Green Climate Fund

An analysis by Claire Smith

Claire attended the 2015 United Nations Climate Change Conference (COP21) in Paris.

Abstract

The 21st Conference of Parties (COP 21) to the United Nations (UN) Framework Convention on Climate Change (UNFCCC) is expected to deliver a binding agreement that could be the most important step towards a global climate change solution since the Kyoto Protocol. A key issue for negotiators will be mobilising climate finance for mitigation and adaptation projects in developing countries, which have contributed least to climate change but will be most affected by its devastating impacts. The UN set a goal to mobilise US$100 billion (bn) in climate finance contributions from developed countries by 2020. To date only US$10.2bn has been raised for the Green Climate Fund (GCF), a UN financial mechanism expected to become the premier body for delivering climate finance to developing countries. The World Bank, UN, G20 and climate experts have identified the need to mobilise private finance to fill this funding gap. The emerging green bond market offers an appealing solution because, with the right support, economists estimate up to US$1 trillion in climate-focussed bonds could be issued per year by 2020. The GCF has a unique opportunity to become the world’s leading proponent of green bonds, but it must address challenges related to bond structures, risk levels, debt capacity, and financing models before it is in a position to start issuing bonds and facilitating investment in projects on a large scale. Short-term efforts should focus on mobilising sufficient capital from the public sector, building robust networks, and facilitating market readiness to lay the groundwork for future activities.

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