Companies, banks, and governments issue bonds. They are a form of loan, where an investor gives the issuer of the bond a certain amount of money for a set period of time. In return, the investor receives periodic interest payments, before being returned the initial loan. In the case of climate bonds, the issuer of the bond uses the loaned money to invest in projects that help reduce greenhouse gas emissions and make societies more resilient to climate shocks.

Climate bonds are an important way of raising money to tackle the climate and nature emergency. They offer investors a more sustainable option for financial investing. Over US$863 billion worth of bonds linked to sustainability efforts were issued in 2022, around 5%of the global bond market.

However, climate bonds have been criticized for being used to fund projects that are not environmentally sustainable. They’ve also been issued by companies that invest in fossil fuels. This is a form of ‘greenwashing’. Those funding genuinely sustainable projects also might not pay attention to whether these investments support climate justice, meaning the bonds may have unintended side effects. 

Clear and enforceable rules are needed to make sure that climate bonds genuinely contribute to lowering greenhouse gas emissions, and do so equitably.

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• What is a Green Bond? (Climate Bonds Initiative, Youtube)

• Green Bonds: Watch out it could be a trap! (Reclaim Finance)

• Many banks and financial companies sell customers bonds that are described as green. Do your research if you are buying climate bonds, checking what they will be used for and what else the organization is involved with.

• Support groups that fight against greenwashing in financial markets, like Reclaim Finance and Positive Money