Climate bonds to bridge the gap?: An examination of environmental benefits, investor motivations and barriers to further use of themed bonds for private climate finance

Climate bonds, that is, finance bonds with an underlying investment linked to climate change mitigation or adaptation infrastructure, are covered as a potential bridge between the requirement for vastly increased funding for climate change and the field of responsible investment. The research set out to identify whether and how climate bonds could act to deliver a tangible and legitimate environmental benefit, identify institutional investor motivations for consideration of climate bonds as part of investment portfolios and to gain insight into the barriers and issues preventing the industry from growing further. Qualitative research was conducted using semi-structured interviews with key industry participants and stake holders to gather an in-depth understanding. Document analysis was also used to triangulate responses given. The research found that climate bonds do have the potential to deliver an environmental benefit, although this is potentially limited by a lack of transparency for secondary products. Investor motivations were identified, with climate change risk management seen as the dominant factor. Finally, barriers and issues were determined; with worrying conclusions around the finance and investment industry's level of education around climate change although promisingly few barriers specific to climate bonds as an asset class