Inevitably, much of the heavy lifting will have to be done by the bond markets, which are more suited than equity markets to the long-term investments that need to be made in power infrastructure, transport networks, agriculture, water, waste buildings and industry. Investors, particularly those that have signed up to the UN's Principles for Responsible Investment, are increasingly looking to put their money towards areas that will provide returns that are more sustainable and climate bonds are the ideal vehicle for this.
"Bonds are particularly suited for providing the capital for the long-term environmental infrastructure required to build a low-carbon, climate-resilient economy," says the Climate Bonds Initiative, which campaigns for more investment in low-carbon solutions.
According to HSBC, around $10tn (£6.5tn) of low-carbon investment was needed between 2010 and 2020 in the energy sector alone, $6tn of it in the form of debt. Climate bonds, where the money raised is allocated purely to low-carbon activities, could be crucial.
The market is growing rapidly – in 2012, $74bn of climate bonds were issued, 25% more than the previous year, says Bridget Boule, programme manager at the Climate Bonds Initiative. That makes the total climate-themed bond market now worth $346bn. Issuance remains dominated by the transport sector, particularly rail, followed by energy.
Nonetheless, compared to the size of the overall market, issuance remains tiny. "When climate bonds are issued, demand seems to be reasonably strong," Boule says. "The lack of products is the biggest barrier to the growth of the market."…
A generic bond certificate. Do not attempt to redeem! Not legal tender! Shot by Downingsf, Wikimedia Commons, under the Creative Commons Attribution-Share Alike 3.0 Unported license
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