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Green bonds: Extraordinary growth and potential in financing Europe's climate goals

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On 2 December 2016, the European Commission released a studyon the potential and functioning of green bond markets, demonstrating that green bonds have enjoyed extraordinary growth since they were first issued in 2007. The study also identifies key bottlenecks and measures to overcome them so they can fulfill their huge potential.

 

The study was released two days after the Commission's "Clean Energy for All Europeans" package which finds that an extra EUR 177 billion is needed annually from 2021 onwards to reach the 2030 climate and energy goals. New innovative funding and investment mechanisms will be essential to achieve this. Today, green bonds mainly finance projects in renewable energy (45.8% of the issuance globally in 2015), energy efficiency (19.6%), low carbon transport (13.4%), sustainable water (9.3%), and waste & pollution (5.6%). Green bonds are thus one important financing instrument to deliver on the ambitions of the Clean Energy package. Green bonds will also be on the agenda of the High Level Expert Group on sustainable finance that the Commission established on 28 October 2016.

 

The study identifies the lack of green project pipelines as well as the absence of a green bonds definition and framework as holding back development. But there are many good practices in EU Member States and beyond to overcome these and other limitations. Examples of public sector measures range from 'soft measures' such as raising awareness and capacity building to more stringent approaches such as mandatory disclosure of green indicators for bond issuances and investments.

 

The study also looks into standardisation. Many stakeholders stress the importance of standards to ensure that the proceeds from green bonds are used for genuinely green projects with clear and measurable environmental objectives. Market-led initiatives are developing strongly in this area. The study advises supporting a common European Green Bonds Standard building on existing market-led initiatives.

 

 

For further information or to download the study, please visit the relevant European Commission webpage at the link below.