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Climate control needs have reached momentum. While scientists call for stabilizing climate and regulators structure climate change mitigation and adaptation efforts around…
Climate control needs have reached momentum. While scientists call for stabilizing climate and regulators structure climate change mitigation and adaptation efforts around the globe, economists are concerned with finding proper and fair financing mechanisms. In an overlapping-generations framework, Sachs (2014) solves the climate change predicament that seems to pit today’s against future generations. Sachs (2014) proposes that the current generation mitigates climate change financed through bonds to remain financially as well-off as without mitigation while improving environmental well-being of future generations through ensured climate stability. This intergenerational tax-and-transfer policy turns climate change mitigation into a Pareto improving strategy. Sachs’ (2014) discrete model is integrated in contemporary growth and resource theories. The following article analyzes how climate bonds can be phased-in, in a model for a socially optimal solution and a laissez-faire economy. Optimal trajectories are derived partially analytically (e.g., by using the Pontryagin maximum principle to define the optimal equilibrium), partially data driven (e.g., by the use of modern big market data), and partially by using novel cutting-edge methods – for example, nonlinear model predictive control (NMPC), which solves complex dynamic optimization problems with different nonlinearities for infinite and finite decision horizons. NMPC will be programed with terminal condition in order to determine appropriate numeric solutions converging to some optimal equilibria. The analysis tests if the climate change debt adjusted growth model stays within the bounds of a sustainable fiscal policy by employing NMPC, which solves complex dynamic systems with different nonlinearities.
The learning outcomes of this paper is as follows: to review the basic differences between the two evolving bonds, i.e. green vs masala bonds in the Indian capital market;…
The learning outcomes of this paper is as follows: to review the basic differences between the two evolving bonds, i.e. green vs masala bonds in the Indian capital market; to comprehend the factors that need to be considered in deciding the type of bond to be issued; to assess complexities, such as process, timing, risk and location in relation to the issue of the green bonds; and to understanding the rudiments of bond economics, such as pricing, all-in-cost and yield-to-maturity of bonds and make a comparison of all-in-cost of the Reg-S bond and green bond to Indian Railway Finance Corporation (IRFC).
In September 2017, IRFC, a public sector undertaking registered as a Non-Banking Finance Company with Reserve Bank of India under the administrative control of the Ministry of Railways, was planning to raise US$500m 10-year green bonds from investors in Asia, Europe and the Middle East. The green bond proceeds were proposed to be used for low carbon transport and in this way, contribute significantly to the green initiatives of the Indian Railways. Many companies in India had issued regular bonds without labeling them as green but had used the proceeds of the bond for climate-aligned assets. Therefore, a bigger challenge before the IRFC management was the economics of green bond for getting a nod from the Board of Governors to go ahead. Some preliminary estimates on cost of green bonds were received from few bankers but to see that the terms of green bonds are met eventually, the Director (Finance) developed his own estimate of the cost of the new bonds. The Managing Director and Director (Finance) of IRFC were trying to figure out the economic advantage of green bonds besides its social benefits.
Complexity academic level
MBA Programme Executive Training.
Teaching notes are available for educators only.
CSS 1: Accounting and Finance.
The purpose of this paper is to develop an investment valuation model using the mezzanine debt mechanism based on blue bonds that explicitly allude to public–private…
The purpose of this paper is to develop an investment valuation model using the mezzanine debt mechanism based on blue bonds that explicitly allude to public–private partnerships (P3s) and project finance (PF). Additionally, this study proposes the financial captured value (FCV) theory for measuring how much financial value lenders may capture by becoming sponsors through financing of sustainable infrastructure systems (SIS).
The investment valuation model was validated through the Aguas Claras wastewater treatment plant as a case study.
The empirical results show that lenders may capture financial value by converting outstanding debt into equity shares throughout the operation and maintenance stage. Furthermore, case study results provide new insights into the implications of the debt–equity conversion ratio on the relationship between the sponsors’ internal rate of return and the FCV.
The most significant limitation is the lack of primary and secondary information on blue bonds. Thus, robust statistical analyses to contrast results were not possible.
Researchers and practising professionals can improve their understanding of how mezzanine debt, P3s and PF into an investment valuation model allows financing SIS using a non-conventional financial mechanism. The recommendations will benefit both the academia as well infrastructure industry in bridging the gap between design theory and practice.
Sustainability components have not been addressed explicitly or combined in the financing’s structuring. Therefore, the investment valuation model could be considered a novel methodology for decision making related to financing and investment of SIS.
The World Bank report Changing Wealth of Nations 2018 is only the most recent reminder of how much poorer Africa is becoming, losing more than US$100 billion annually from…
The World Bank report Changing Wealth of Nations 2018 is only the most recent reminder of how much poorer Africa is becoming, losing more than US$100 billion annually from minerals, oil, and gas extraction, according to (quite conservatively framed) environmentally sensitive adjustments of wealth. With popular opposition to socioeconomic, political, and ecological abuses rising rapidly in Africa, a robust debate may be useful: between those practicing anti-extractivist resistance, and those technocrats in states and international agencies who promote “ecological modernization” strategies. The latter typically aim to generate full-cost environmental accounting, and to do so they typically utilize market-related techniques to value, measure, and price nature. Between the grassroots and technocratic standpoints, a layer of Non-Governmental Organizations (NGOs) do not yet appear capable of grappling with anti-extractivist politics with either sufficient intellectual tools or political courage. They instead revert to easier terrains within ecological modernization: revenue transparency, project damage mitigation, Free Prior and Informed Consent (community consultation and permission), and other assimilationist reforms. More attention to political-economic and political-ecological trends – including the end of the commodity super-cycle, worsening climate change, financial turbulence and the potential end of a 40-year long globalization process – might assist anti-extractivist activists and NGO reformers alike. Both could then gravitate to broader, more effective ways of conceptualizing extraction and unequal ecological exchange, especially in Africa’s hardest hit and most extreme sites of devastation.
Advancing the economies in Asia toward meeting sustainable development goals (SDGs) needs an unprecedented investment in people, processes and the planet. The…
Advancing the economies in Asia toward meeting sustainable development goals (SDGs) needs an unprecedented investment in people, processes and the planet. The participation of the private sector is necessary to bridge the financing gap to attain this objective. Engaging the private sector can contribute significantly to attaining the 2030 agenda for SD. However, the financial markets in Asian economies are yet to realize this potential. In this context, this paper aims to discuss the state of finance for SD in Asia and identifies innovative financial instruments for attracting private investments for SDs in these economies.
This study relies on published articles, reports and policy documents on financing mechanisms for SD. The literature review covered journal data sources, reports from global institutions such as the UN, World Bank, International Monetary Fund and think-tanks operating in the field of climate change policies. Though the topic was specific to financial market instruments, a broader search was conducted to understand the different sources of sustainable finance available, particularly in Asia.
The investments that are required for meeting the SDGs remain underfunded. Though interest in sustainability is growing in the Asian economies, the financial markets are yet to transition to tap the growing interest in sustainable investing among global investors. This paper concludes that to raise capital from private investors the Asian economies should ensure information availability, reduce distortions and unblock regulatory obstacles. It would also need designing policies and introducing blended financing instruments combining private and public funds.
Though the study has grouped Asian economies, the financing strategy for SDGs should be developed at the country-level considering the domestic financial markets, local developmental stage, fiscal capacity and nationally determined contributions. Further research can focus on developing country-specific strategies for using innovative financial instruments.
Mobilizing funds for implementing the 2030 Agenda for SD is a major challenge for Asian economies. The paper is addressed to national policymakers in Asian economies for developing strategies to raise capital for SD through private participation. It provides opportunities for revisiting national approaches to sustainable finance in these economies.
This paper is a survey of recent academic developments in the literature on green bonds, which have become an important financial instrument in socially responsible investment. This study provides a review of papers that study the market pricing of green bonds, the economic and environmental effects of green bond financing, as well as legal and institutional issues in the green bond market. The literature on market pricing focuses mainly on the existence of greenium, which represents the extent to which green bonds carry a price premium over otherwise identical non-green counterparts. The literature on the economic and environmental effects mainly concerns stock market reaction to green bond issuance and associated economic value implications to other stakeholders, as well as investment in green projects. This paper discusses current issues in the green-bond market and avenues for future research.
The downturn came after a strong 2019 when there was a record issuance of green bonds.
One of the major negative effects of the Coronavirus outbreak worldwide has been reduced investment in green energy projects and energy efficiency. The main purpose of…
One of the major negative effects of the Coronavirus outbreak worldwide has been reduced investment in green energy projects and energy efficiency. The main purpose of this paper is to study the role of green bond proposed by the World Bank in 2008, as a reliable instrument to enhance the capital flow in energy efficiency financing and to develop green energy resources during and post the current challenging global time.
We model energy efficiency for 37 members of OECD through a panel data framework and quarterly data over 2007Q1–2020Q4.
The major results reveal the positive impacts of issued green bonds and regulatory quality index on energy efficiency, while any increase in inflation rate and urbanization decelerates the progress of raising energy efficiency.
As highlighted concluding remarks and policy implications, it can be expressed that the tool of green bond is a potential policy to drive-up energy efficiency financing and enhancing environmental quality during and post-COVID period. It is recommended to follow green bond policy with an efficient regulation framework and urbanization saving energy planning.
To the best of the authors' knowledge, although a few scholars have investigated the impacts of COVID-19 on green financing or examined the energy efficiency financing, the matter of modeling energy efficiency–green bond relationship has not been addressed by any academic study. The contributions of this paper to the existing literature are: (1) it is the first academic study to discover the relationship between energy efficiency and green bond in OECD countries, (2) since our empirical part provides estimation results based on quarterly data covering the year of 2019 and 2020, it may offer some new policy implications to enhance energy efficiency financing in and post-COVID period, (3) furthermore, we consider energy efficiency indicator (mix of industrial, residential, services and transport energy efficiency) as the dependent variable instead of using the simple energy intensity variable as a proxy for energy efficiency.
As investors' expectations shift toward corporate sustainability, many corporations have jumped on the bandwagon of being “green” by issuing green bonds. However, as a…
As investors' expectations shift toward corporate sustainability, many corporations have jumped on the bandwagon of being “green” by issuing green bonds. However, as a recent green financing tool, little attention has been paid on the value that green bonds actually deliver. This causes the problem of greenwashing, in which firms pretend to be environmentally responsible when in reality they are not. This study therefore aims to explore green bonds' impact on issuers' corporate environmental and financial performance.
The sample is collected from among the green bond and conventional bond issues between 2015 and 2019 issued by corporations from various countries. Using the propensity score matching (PSM) and then difference-in-difference (DiD) approaches, two sub-groups (green bond and conventional bond issuers) were generated for comparison. Changes in environmental and financial performance over time between the sub-groups are then examined.
The overall results show that green bonds are effective in improving environmental performance, but only when they are certified by third parties. Additionally, green bonds do not have an impact on financial performance. The findings imply that green bonds' dependency on external certification may be a consequence of an underdeveloped green bond market, where weak governance still dominates the green bond market. Because of this, corporations tend to take advantage of green finance's growing popularity, causing the greenwashing problem.
Green bonds are an extremely new area of research. Few research studies focus on the effectiveness of green bonds in impacting corporate financial and environmental performance. Therefore, this study strives to fill this research gap. It sheds light on the effectiveness of green bonds in supporting the development of green projects and provides a reference point for decision-making in strengthening transparency and accountability in environmental disclosure and helps regulating authorities develop tighter regulatory controls.