In the Paris Agreement adopted in December 2015 by the 21st Conference of the Parties to the United Nations Framework Convention on Climate (COP21), Parties agreed to hold the increase in the global average temperature to well below 2°C and pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels. Parties also agreed to make finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.

In the Paris Agreement, Parties agreed to hold the increase in the global average temperature to well below 2°C and pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels, and to make finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development. Recent estimates suggest that approximately USD 93 trillion in infrastructure investment will be needed in the next 15 years in a “low-carbon” scenario.

This chapter describes the emergence of a market for green bonds, in the context of broader efforts to finance a low-carbon transition, and examines how the market has evolved. It describes the roles of a range of actors in the market, the continuing evolution of green bond definitions and governance standards. It also provides an overview of the advantages and disadvantages of green bonds as perceived by investors and issuers. This information provides the necessary introduction and context for the chapters that follow on barriers to market growth and actions that policy makers are taking to overcome them (Chapter 2), and a quantitative assessment of the role of bonds in a low-carbon transition (Chapter 3).

This chapter provides an assessment of barriers to green bond market development and growth, as well as barriers related to: 1) fundamental preconditions for a deep, liquid domestic bond market; and 2) the enabling environment for the development of green infrastructure projects that may be financed or refinanced through the bond markets. The chapter also provides a stock-taking of existing country experiences and actions to overcome barriers to green bond market development. It concludes with a set of policy considerations for fostering sustainable debt capital market access for green infrastructure that emerged from OECD’s contributions to the G20 Green Finance Study Group.

This chapter proposes a framework for understanding possible directions of bond market evolution and for analysing the potential contribution that the bond markets can make to a low-carbon transition. It lays out scenarios providing the first quantifications of debt financing, and bond financing in particular, that would be required in order to meet a 2oC energy investment scenario. Starting with energy investment requirements at the national level estimated by the International Energy Agency for its 2oC scenarios (2DS), the analysis converts investments into their constituent equity and debt components. Focusing on debt, the analysis considers the role that the bond markets will need to play to finance this investment and connect bond supply with demand from institutional investors.