Policy areas supporting the growth of a green bond market

Market integrity: Principles & standards:

This category of policy tools works on ensuring a robust green market by supporting the market development of green definitions and standards, verification, certification and enforcement systems.

Strategic issuance: Cities, development banks, other public entities

This area provides examples and a “how to”-guide for other potential green bond issuers; prove that there is demand for green bonds and improve liquidity of the market by increasing the volume of green bonds issued:

  • Green City Bonds
  • Green bonds from Green banks and development banks
  • Green sovereign bonds

Market development:  Aggregation, securitization, covered bonds

Works to overcome the barrier of scale and risk that prevent a large share of low-carbon investments to access bond markets. This includes:

  • Developing standards for loan contracts, installation processes, operations and management
  • Green warehousing
  • Green covered bonds

Improving risk-return profile: Increasing returns and reducing risks

This category of policy tools works on improving the risk-return profile of climate investments, by either reducing risks or increasing returns for low-carbon investments relative to high-carbon investments. Policy support here includes:

Increasing returns through public policies in the real economy such as feed-in-tariffs and carbon pricing
Reducing risks through public financing tools such as guarantees, first-loss provisions and insurance

Tax incentives for issuers and investors

Focused on improving the risk-return profile of climate investments by improving real returns to investors, or by making it cheaper for issuers to issue green bonds.

Boosting demand: Mandates for domestic funds, quantitative easing

This category follows a “green bond pull” strategy, as creating demand for green bonds will make it more attractive for issuers to issue green bonds.

  • Green bond mandates for domestic funds: Sovereign wealth funds, development banks
  • Green quantitative easing directly into green infrastructure bonds

     

For more information about identified policy areas contact Beate Sonerud (link sends e-mail), Climate Bonds Initiative Policy Analyst