Green Bonds Market to accelerate the Net Zero Agenda

Green and sustainable debt issuance has been growing rapidly globally, despite the comparative lack of regulation of green financial instruments.

In these initial stages of the climate transition, there is a critical need for long term, high-risk capital for investments in sectors whose paths to decarbonization are dependent on technologies that are still in the preliminary stages of development, such as iron and steel, heavy road transport, and shipping.

In a number of jurisdictions, the regulatory pressure is not yet strong enough to compel banks to take immediate action on climate issues, even though climate change poses an array of risks to their portfolios

Larger banks in fossil fuel-exporting countries typically have high exposures to the oil and gas industry and other high-emitting sectors of the economy such as transportation, construction, and infrastructure.

Considering development banks and funds have a critical role to play in supporting green investments there are some key principles that need to be considered for success.

They are:

• Providing financing for non-bankable green projects with lower risk-adjusted returns or higher investment risks, such as supporting research, development of innovative technologies such as renewable power.

• Mobilizing private capital investments in green projects by improving their riskadjusted returns with various risk mitigation instruments.

• Using their expertise to provide support and advice to policymakers and regulators on the reforms needed to scale up climate finance.

• Regional bank alliances prove key to this end, such as the Net Zero Banking Alliance NZBA and the Science-Based Targets initiative SBTi, as well as joining working groups such as the Partnership for Carbon Accounting Financials, to influence the global standard-setters.

The need for key regulatory interventions to drive climate action through climate reporting and disclosure to then create taxonomies of sustainable activities is pivotal to creating efficient markets.

Another potential intervention such as the creation of carbon pricing structures that could stimulate demand for investments in renewables and low-carbon technologies while reducing subsidies for high-carbon projects, levelling the playing field, and making cleaner projects more economically attractive.

At the initial stage, the roles of regulators and development finance will be key, with the former developing the policies and regulations needed to stimulate demand for climate finance, while development finance institutions can help attract private sector investment by de-risking investment in climate projects via blended finance solutions.

With time, as climate finance regulation is rolled out and green projects become more bankable, banks and financial institutions will become the key source of funding for the climate transition.

Contact Us: John Martin

Founder and Chief Executive Officer

PLUTUS CONSULTING GROUP LIMITED

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