Public issuance of green bonds is important for several reasons:
- Provide initial market product pipelines and liquidity
- Engaging investors and educating them about green bonds
There are several channels for public issuance of green bonds:
- Green municipal bonds: This is an important area for future growth as cities and sub-sovereign entities (especially in emerging markets) raise finance to meet climate infrastructure requirements.
For example, two rounds of green city bonds have been issued by the Swedish city of Gothenburg to finance public transport, water management, energy and waste management projects. Other issuers of green city and municipal bonds include Ile de France (Paris), Massachusetts, California, New York, Gothenburg, Stockholm and Johannesburg.
- Green banks, or “greened” development banks, international or domestic: The international development banks pioneered the issuance of green bonds, and recently domestic development banks have also issued green bonds to help grow domestic markets.
For example, the German development bank, KfW, issued EUR1.5bn of green bonds in July 2014, and another US$1.5bn in October 2014. An example of issuance by a green bank is provided by the Connecticut Energy Finance and Investment Authority (CEFIA), a US clean energy bank, which has been allowed to issue $50 million in bonds backed by a ring-fenced account in the state’s Special Capital Reserve Fund.
- Green sovereign bonds: At this stage, there is less potential for the issuance of green sovereign bonds, where a country would issue a green bond with the proceeds earmarked for a specific green program.