Green Bond Financing

Green Bond Financing

Green bonds are an increasingly popular form of financing. Currently, however, green bonds are issued separately from regular bonds, increasing transaction costs. Moreover, green bonds lack transparency and are often used to finance existing projects, instead of stimulating new initiatives. As a consequence, green bonds allow firms to engage in window-dressing or greenwashing. As a solution, we propose that green bonds are split into regular bonds and green certificates. This ensures that market prices reflect the environmental performance of the bonds, reduces financing costs through increased liquidity, and incentivises new environmentally friendly projects. Download the full paper.