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Green bonds: a solution for financing the energy transition or a simple buzzword?

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  • E. Buttin

Abstract

The COP 21 conference stressed the importance of directing financial flows towards the financing of the energy transition. Given the magnitude of the needs (over USD 53 trillion by 2035), new sources of financing are needed, such as green bonds. This article looks at the underlying factors of the boom in this market and the tools that would help to develop it without increasing the risks to financial stability. Green bonds are seen as a privileged financing instrument, both by issuers to diversify their investor base and benefit from oversubscription, and by investors to fulfill their mandate and implement their long-term strategy. Thus, green bond issuance increased four-fold between 2013 and 2015, reaching USD 42 billion in 2015. However, green bonds pose risks (counterparty risk, credit risk, green washing risk, which consists in terming projects green where they are not) and additional costs compared to standard bond issuance (labeling, reporting). To develop this market, public authorities have a role to play in fostering its organisation, without, however, increasing the risks for the financial system.

Suggested Citation

  • E. Buttin, 2016. "Green bonds: a solution for financing the energy transition or a simple buzzword?," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 44, pages 20-27, Winter.
    • Handle: RePEc:bfr:quarte:2016:44:02
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    References listed on IDEAS

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    1. Igor A. Yakovlev & Svetlana I. Nikulina, 2019. "Indonesia’s Strategy for Sustainable Finance," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 6, pages 83-95, December.

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    More about this item

    Keywords

    green bonds; investment; energy transition; financial regulation;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development

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