Financing climate-resilient infrastructure through long-term green bond

As the urgency for climate change adaptation measures intensifies, the significance of financing for such adaptations has garnered considerable attention. Nevertheless, the formulation of effective adaptation financing mechanisms presents a complex and formidable challenge. This study seeks to examine several critical elements within a typical adaptation financing framework, specifically focusing on green bonds, to assess their influence on the design of bond issuance cycle. We develop a continuous time model that integrates adaptation strategies with the financing process and perform a theoretical analysis of pivotal decisions involved in investment and financing, including the allocation of adaptation resources, financing and repayment structures, and issuance cycles. The model’s efficacy is subsequently validated through a case study on hydropower management. Furthermore, we conduct an empirical assessment of various key factors that influence the cycle of green bond issuance. Our theoretical findings indicate that an increase in the marginal utility of adaptation investment correlates with enhanced financing efficiency, necessitating that decision-makers adopt proactive financing strategies. Additionally, both heightened production efficiency and increased climate uncertainty are associated with extended bond issuance cycles. Our empirical analysis further reveals that the influence of bond interest rates on the issuance cycle is more pronounced in long-term bonds, potentially encouraging firms to pursue more preemptive adaptation strategies.