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Green bonds – the building blocks of cleaner, smarter, healthier finance

Environment Programme / Blog

Photo: © Oak Foundation

Green bonds are one of the best financial instruments for building a cleaner, safer and healthier future.

Green bonds are bonds specifically earmarked to be used for climate and environmental projects and can be issued by governments, banks, cities or businesses. More specifically, green bonds finance projects aimed at energy efficiency, pollution prevention and clean transportation. They also drive the finance sector towards achieving the Paris climate goals.

In 2018, according to Oak grantee the London-based Climate Bonds Initiative, the level of certified green bonds reached USD 167.6 billion. Year on year, this figure goes up as the target of achieving a trillion-dollar green bond market comes closer. And a major driver of this accelerating growth is coming from China’s appetite for greening its finance market.

Last year, China’s green bond issuance reached USD 42.8 billion, representing a 12% increase, cementing the country’s position as the second-largest green bond market in the world. The quality of green bonds continues to improve and there has been a significant improvement in the transparency of Chinese green bonds. Major Chinese banks including Industrial and Commercial Bank of China (ICBC), the world’s largest bank, issued certified green bonds reflecting a commitment to international best practice in green investment markets.

China is expected to accelerate growth in the green finance market at scale through ramping up policy support and further regulatory development. This includes three broad catalysts for growth:

  1. deepening of the green securitisation market;
  2. growing green bond issuance at the local level; and
  3. further opening up of China’s green bond market.

Looking beyond China, hot spots for green bond growth are emerging in key countries across Southeast Asia, such as Indonesia and The Philippines. Oak is supporting efforts in these countries to deliver on national climate ambitions and capitalise on exciting opportunities for clean power investment. As governments look to transition away from polluting fossil fuel use and clean up their communities, it is clear that green bonds will play an important role in the shift to a carbon-free world.

As Climate Bonds Initiative CEO Sean Kidney said: The 1.5 degree IPCC report “has exploded any faint illusions that the world still has the comfort of decades to take decisive action on climate. Against the ticking clock that the report loudly amplified, pressure comes from all quarters that climate and green investment must increase”.  

We all have a role in driving investments towards clean power – How are you helping to create this new clean economy?

Written by Dan Cao, Programme Officer, climate change sub-Programme, Environment Programme