Renewable Energy Finance : Green Bonds
The world’s transition to a low-carbon economy necessitates a massive shift in the allocation of financial capital. Green bonds are fixedincome securities whose proceeds are meant to be allocated to sustainable assets. The green bond market can serve as an important bridge between providers of capital, such as institutional investors, and sustainable assets, like renewable energy.
From a slow start in 2007, and a market driven primarily by multilateral development banks, green bonds have experienced impressive growth over the past decade. With annual issuances approaching USD 190 billion in 2019, the growth has also been marked by a greater diversification of issuer types. Although corporations and financial institutions are becoming dominant, sovereign issuances used to finance climate-aligned assets are also increasing. European issuers have been joined by issuers from North America and, increasingly, from Asia-Pacific. Renewable energy is the leading recipient of green bond proceeds, but most green bonds finance multiple sustainable solutions.
While progress to date has been impressive, there is still opportunity for further growth and improvement. Cumulative issuances of green bonds are still below 1% of cumulative global bond issuances. To achieve further market growth, particularly as it relates to the renewable sector, co-ordinated actions among many stakeholders are needed.
Policy makers can help increase both the supply of green bonds (through the adoption of leading climate-aligned green bond standards) and the provision of enabling policies that grow the renewable energy sector. Public capital providers can do their part to help derisk renewable assets and can support green bonds through provision of the seed capital, demonstration issuances and capacity building. Institutional investors can assist by aligning their internal capacities and investment targets with long-term sustainability mandates.
Other stakeholders, such as rating agencies, financial institutions and retail investors, also play a role in strengthening the green bond market and advancing the global energy transformation.