Climate Finance and the Point of Green Bonds

Abstract: The emergence of green bonds in 2008 has been perceived as an important means to move towards green and sustainable investments, and the green and sustainable bond markets have also grown exponentially. The purpose of my thesis is to analyse the green bond instrument and the role that it plays at climate finance.  Notably, the role of the green bond and climate finance has changed over time. The Paris Agreement from 2015 was the first climate agreement to address the finance sector, and the sustainable finance markets are now moving forward at a swift pace, with new and innovative products developing and rewarding green and sustainable investments.  The essence of the research is threefold. Firstly, an analysis based on an empirical study and analysis of the terms and conditions of the contracts between issuers and investors regulating green bonds on the Nordic market. Secondly, an analysis of the new innovative bond instruments – transition bonds and sustainability-linked bonds – following the green bond that have emerged starting in 2019. Thirdly, the green bond instrument is analysed in its historical context, describing the role of carbon pricing and comparing the green bond instrument to experience from early project-based climate finance, the Clean Development Mechanism (CDM). To conclude, an analysis is provided of the green bond instrument and the role that it plays at the transformation to a climate-resilient and sustainable society.  The perspective in the analysis and the discussion is normative and forward looking (“de lege ferenda”), based on experience – “lessons learned” – from the development of early climate finance and the development that the green and sustainable bond market has undergone. The ultimate purpose is to analyse the role the of the green bond at climate finance. My analysis addresses the interplay between  coercive and voluntary regulation of the green bond instrument.  The theory and findings of the thesis are that flexibility should be provided to market participants to allow for the development of new innovative instruments, based on the tools and infrastructure developed at climate finance and green and sustainable bonds. Legal regulation should focus on information and disclosure of climate-related and sustainability risks, and providing clarification and codification of definitions and standards for this purpose. The tools and infrastructure created for green bonds, and further developed for other emerging innovative bonds, could be used to provide transparency at sustainability at all finance. As climate-related and sustainability risks are disclosed and addressed properly is provided and fiduciary duties are developed, the financial market can move from rewarding “green”, to penalising “brown” investments. When “green” is the new normal there will be no need for a specific green bond instrument. The point of green bonds is being part of this journey – not the solution.

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