By Tatiana Gaitan, Graduate Consultant, Highbury Communications
How green bonds can lead the way with clear communication and policies
Despite years of discussions and renewed funding promises at COP29, climate change and its consequences are advancing. So,how can we raise awareness of innovative tools such as green bonds and the policies that support those tools to help mitigate climate change?
As NASA shows, the climate is warming faster than in the last 10,000 years due to human activity. This year, the water cycle is unbalanced for the first time in human history meaning that how the water moves around the earth, from evaporation to rain or snow, is changing and we cannot rely on precipitation and fresh water. This has consequences when three billion people are affected by water scarcity and 50% of global production is threatened.
Green bonds
However, more than eight years ago, green bonds were presented as a solution to address the rapid causes and consequences of climate change. Aimed at raising funding for climate change mitigation, this fixed-income financial instrument specifies that all investments are directed toward climate initiatives like greenhouse gas emissions reduction or clean energy. Since the first bond was issued, there has been growing demand, which could reach $1.05 trillion in 2024.
Despite these efforts and growing demand, a recent study fromThe Assessing Sovereign Climate-related Opportunities and Risks project (ASCOR) argues that more than 70 countries “perform poorly on commitments to phase out fossil fuel subsidies and production, making finance flows inconsistent with a 1.5°C future”. In fact, COP29 in Baku concluded with richer countries once again promising to fight climate change through funding, but with plenty of critics calling for stronger actions.
While green bonds have the potential to slow climate change and contribute to its mitigation, a more effective and coordinated approach to climate investment is essential.
At the 2024 Climate Bonds Initiative (CBI) conference in London, Sean Kidney, CEO of the CBI, emphasised the urgent need to accelerate the adoption of green bonds. Despite growing demand, these bonds remain a niche segment within the broader bond market, with just 14% participation.
Promoting green bonds
While they are increasingly promoted among investors and asset managers, broader communication is necessary to highlight their potential as an innovative financial tool for combating climate change. Advocates are calling for systemic change, urging a complete reallocation of financial flows toward climate solutions. However, this can only happen with improved awareness about the role that tools like green bonds have in climate change mitigation and resilience.
Aligning policies
Additionally, policy measures must support this acceleration through frameworks that facilitate the adoption of green bonds. Although the EU introduced its finance taxonomy in 2020, a classification system to define economic activities aligned with environmental goals to guide sustainable investments, over 45 countries have since developed their own frameworks, creating a fragmented landscape.
As highlighted at the CBI conference, this proliferation of taxonomies makes it harder to issue green bonds. Addressing this fragmentation is critical to simplifying the process and effectively channelling resources toward climate action, instead of making more promises in big conferences. Greater alignment could eliminate these barriers and focus on expanding the market share of green bonds.
By developing green bonds, we can help boost awareness of them as a tool to reduce carbon emissions and tackle climate change.