Green Bond: An Instrument to Fight Climate Change

Abstract

This paper looks at the ability of green bonds to mobilise financing for adaptation and mitigation in developed countries. It examines, on the basis of a theoretical approach, the key drivers of the green bond market in recent years and the challenges stopping developed countries from seizing it. The results suggest that, in both developed and developing countries, green bond growth is a fact, supported by growing investor awareness of the environment. Nevertheless, in developing countries, demand remains incipient, and its maximum potential seems to be undervalued.The lack of adequate institutional frameworks for handling green bonds, the issue of minimum size, and high transaction costs associated with issuing green bonds, are key barriers to green bond growth in developing countries. To address these challenges, this paper suggests the successful use of multilateral and national development banks as intermediary institutions for the management of local green bonds. In addition, local governments are required to offer guarantees to local green bond issuers to cover the funding costs associated with green bond issuance.