Instruments
The financial products designed to fund climate action, and the loopholes they sometimes create.
Six instruments. One question: where does the money go?
- 01 Green BondsFoundational Bonds that ring-fence their proceeds exclusively for environmental projects, with transparent reporting requirements before and after issuance.
- 02 Cap-and-Trade A compliance system where a government caps total emissions, issues tradeable permits up to that limit, and lets the market determine who reduces and who pays.
- 03 Carbon Offsets Certificates representing one metric tonne of greenhouse gas emissions avoided, reduced, or removed elsewhere, used to compensate for emissions a buyer cannot yet eliminate.
- 04 Sustainability-Linked Bonds Bonds whose financial terms (typically the interest rate) change depending on whether the issuer hits pre-agreed sustainability targets.
- 05 The Greenium The lower yield, and therefore lower borrowing cost, that green bond issuers enjoy compared to equivalent conventional bonds from the same issuer.
- 06 Transition Bonds Bonds designed to help high-emitting, hard-to-abate industries raise capital for decarbonisation, filling a gap that green bonds and sustainability-linked bonds don't fully address.