As cities look to encourage private backing for climate projects, one source to consider is the green bond market. The global market for green bonds (also known as ‘climate bonds’) totalled US$ 1.5 trillion as of the start of 2022. Green bonds can provide attractive financing and refinancing options for climate projects in various sectors:
- Green bonds can be a low-cost, long-term and diversified source of capital compared with traditional bank loans.1 By bundling projects into one investment, bonds provide economies of scale and attract new investors. Private-sector demand for green bonds is outstripping supply, which is helping many issuers to achieve low interest rates and suggests that the scale of private capital ready for cities to utilise could be significant.2
- Issuing a green bond can draw attention to your city’s climate priorities and climate mitigation and/or adaptation strategy, and make the city more attractive to investors.
- Green bond issuance can help to develop your city’s financial and risk management processes and increase collaboration between its environmental and finance departments, therefore improving the systems needed to raise funding in future.3, 4 Bonds tend to become cheaper with experience.
Climate bond issuance is not possible or appropriate in every context, however. In this C40 Cities guide, we explain how you can decide if they are a good option for your city.
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