There are various definitions of climate bonds, ranging from those covering any ‘climate themed’ activity (e.g. funding renewable energy infrastructure or public mass transit systems) through to the creation of specific financial instruments called ‘climate bonds’.
The Climate Bond Initiative, amongst others, argues that climate-specific bonds would need to be large-scale, with deals of over $500 million, and ‘investment grade’ (above the BBB scoring issued by ratings agencies) to attract investors. They suggest that this could be achieved by structuring climate bonds as asset-backed securities, which would package together loans for renewable energy or energy efficiency. Proposals have also been made to structure climate bonds as Collateralized Debt Obligations (CDOs), or to offer carbon credits as a revenue stream, in addition to interest payments on the sum borrowed.
Proponents of climate bonds have also proposed various means to guarantee investments, including governments or international financial institutionsoffering risk insurance (in effect, playing the role of monoline insurers).
Critics argue that climate bonds are another form of financialization, instrumentalizing climate change for the creation of new vehicles for financial speculation. Climate bonds could repeat many of the mistakes that led to the 2008 financial crisis, loading significant risks onto public institutions in the interest of new opportunities for private gain – thereby undermining the basis for long-term, sustainable public investment.
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