The Paris Climate Agreement requires tremendous investments into a
radically new energy supply, into buildings, transport, mobility and
climate-resilience. It was estimated that between USD 5 and 7 trillion of
public and private capital would have to be raised each year between now and
2050. Green Bonds are hoped to become one of the main financial vehicles to
generate this amount of capital. The Green Bond market, so far, has not been
able to stimulate additional green investments. To change this pattern, this
paper presents several proposals. The most important one is to implement a
disagio in the repayment of the principal if the investment has led to a
reduction in greenhouse gas emissions. The value of this reduction would be
determined by the market prices for emission certificates. With this mechanism
an existing market for certificates could be easily exported into countries
that do not have such a market. High multiplier effects from climate mitigation
investments could be expected so that these disagio payments would finance
themselves. Other important proposals are a support for asset-backed and
covered bonds, a credible third-party certification of the greenness of a bond
and a clarification of the criteria to determine a Green Bond.
JEL classification numbers: G23, G24, G28.
Keywords: Sustainable finance, Green bonds, Carbon markets, Emission
rights, Multiplier effects.