Sustainability in production and consumption requires infrastructure, pointing to the enormous financial prerequisite. Green bonds are an innovative means for channelling capital toward the environment and sustainability. Through a methodical evaluation of the literature, global green bond frameworks, and issuances to date, this chapter attempts to develop a comprehensive understanding of green bonds, as well as their importance in achieving sustainable development. The authors examine the potential of green bonds in unleashing sustainability focusing on the UN SDG 12, titled “responsible consumption and production.” The results suggest that green bonds have huge potential in financing green infrastructure that enables responsible production and consumption. The interdependencies of the sustainability pillars result in overall sustainability with the benefits derived from green bond issuances.
Top1. Introduction
The development humankind has attained so far has drastically altered the environmental systems, as a consequence of which we are on the brink of an unprecedented crisis today- the threat to sustainability. This necessitates striking a balance between development and sustainability, which has led us to adopt the sustainable development agenda. The United Nations (UN) Brundtland Commission in its 1987 report defines sustainable development as “meeting the needs of the present without compromising the ability of future generations to meet their own needs” (Commission on Environment, 1987). It thereby underlines the responsibility in our hands to fine-tune the present development pathways toward sustainability, which is crucial for the survival of humankind. The 17 UN Sustainable Development Goals (SDGs) attempt at implementing a global transformative agenda on this behalf1.
The triple global catastrophes of climate change, biodiversity loss, and pollution are all caused by unsustainable production and consumption, which coupled with environmental deterioration, endanger human welfare and the realisation of SDGs (United Nations, 2022). The climate crisis is extremely significant to counteract as it presents irreversible damage to survival on the planet. Global surface temperatures will continue to increase throughout the twenty-first century unless significant initiatives toward reduced carbon dioxide (CO2) and other greenhouse gas emissions are made in the coming decades (IPCC, 2022). The probability of nations attaining the Paris 2°C goal is low. However, the probability of rapid climate change over the next century is high if no meaningful reforms are implemented (Nordhaus, 2018). To battle these adversities and attain global goals, the current machinery of conventional unsustainable developmental agendas should be revolutionised with sustainable developmental models, based on sustainable production and consumption.
The development and implementation of sustainable production and consumption models have become the need of the hour, which in turn, brings the circular economy and carbon neutrality a reality. Technologies in support of the circular economy and reduced carbon footprint of production and consumption are of utmost importance for sustainability. Such a transition to sustainability is tough, restraining the adoption of such development models. Funding this ‘just transition’ is even more complicated. Even though institutional support has been on the rise, fund allocation remains a bottleneck. Numerous innovations in the field of sustainable finance have emerged to bridge this enormous climate financing gap. In this respect, one of the greatest innovations in the sustainable debt market, that has been gaining mass acclaim is the rise of green bonds.
As per Flammer (2020), green bonds are those bonds the proceeds of which are pledged to finance low-carbon, environmentally beneficial projects. They are also referred to as climate bonds. The green bond market, though nascent, has shown exponential growth over the years. However, the developments in this current niche market, the ‘green bond boom’2, present immense potential for bridging the SDG-financing gap. The previously scanty literature on green bonds has been attracting wide academic interest with the rise in both issuers’ and investors’ interest in the green bond market. Certain studies have drawn their insights on green bonds from the primary market, whereas some have focused on the secondary market. Some of the studies followed a matching approach by comparing green bonds with similar non-green issues of the same issuer (Bachelet et al., 2019; Flammer, 2020; Flammer, 2021; Hachenberg & Schiereck, 2018). However, one of the significant areas yet to attract wide scholarly interest is the significance of green bonds in sustainability and climate action.