Cost of Doing Good: The Dilemma of Investing in Green Bonds

The major challenge of the 21st century was climate change. The goals of the 2015 Paris Agreement (PA) were to curtail global temperature increases this century to below two degrees Celsius above pre-industrial levels and to pursue efforts to limit the increase to 1.5 degrees Celsius. The PA included the 20/20/20 targets: to reduce carbon dioxide emissions by 20 per cent, increase the renewable energy market share by 20 per cent, and improve energy efficiency by 20 per cent. Green bonds served as essential financial instruments to help countries meet the targets set by the PA. While the PA provided the impetus for a green bond market, in late 2023, many investors were still unaware of green bonds and their key characteristics. A critical question was whether investors could expect returns on their green bond investments comparable those of conventional bonds.