aspect of green bonds and their relations to the concept of sustainability

 aspect of green bonds and their relations to the concept of sustainability

The reviewed literature sheds significant insights into the aspect of green bonds and their relations to the concept of sustainability. A critical cross-examination of the outcomes is essential in bringing into light the emerging themes and risks to the issuance of green bonds. Therefore, this section reports and discusses the implications of the results from the reviewed articles to understand better the various aspects associated with this practice.

The results indicated that the concept of green bonds has become popular among institutions in the recent past, with many of them focusing on financing programs meant for achieving sustainability. This outcome is a paradigm shift in the management of finances by firms in the contemporary world. As indicated by Flammer (2019), many enterprises, such as government agencies, supranational bodies, and corporations have recognized the significance of financial sustainability in responding to the problem of climate change. In essence, the issuance of green bonds is considered vital in averting the worsening of climate change.

The findings also showed that most government agencies have recently broadened their efforts towards combating the effects of climate change by closely working with multinationals and local private entities. This growing focus on this issue underscores the commitment that institutions are having to promote sustainable practices in their operations. A study by Flammer (2018) confirms this approach among most of the existing institutions. The author found that enterprises are actively using green bonds to finance projects intended to promote sustainable activities. Therefore, this evidence affirms the utilization of green bonds as a means of reducing negative impacts on the atmosphere.

The evolution of the issuance of green bonds by institutions is attributed to the rising concerns about the negative impacts of climate change. The results showed that since the 1990s, many bodies have been focusing on sustainable financial management as a means of responding to climate change. As outlined by Morana and Sbrana (2019), the green bonds market allows entities to find immediate investment in climate change mitigation. Similar observations are shared by Biais and Green (2019), Ng (2018), and Tolliver, Keeley, and Managi (2020). These scholars note that green bonds are growingly being applied to finance initiatives aimed at reducing emissions, sustainable development, and other cleaner production investments. Collectively, this evidence gives the underlying ground upon which institutions started to incorporate green bonds to manage their finances.

The changing value of the US municipal bond provides the best example of the growing focus on sustainability in financial management. The results showed that most of the institutions in the United States have shifted from the traditional bonds to green bonds as an effective strategy to unlock climate finance. Historically, municipal markets in the country have tended to penalize green bonds by trading them at lower prices and higher yields than anticipated by their clients (Karpf & Mandel, 2018). Nonetheless, this approach has recently changed. Presently, green bonds have become an attractive investment, with a keen eye on bridging the climate finance gap (Karpf & Mandel, 2018). Indeed, without enough finances, it is significantly challenging to respond to an impending problem. Therefore, the reviewed literature confirms that the need for funds to implement sustainable projects laid the foundation for the rise of the concept of green bonds.

The findings of the review also implicate climate change to negative impacts on the stability of the financial system. The reviewed literature revealed that climate change-related risks such as transition and physical issues could harm financial transactions in many ways. However, most of the studies have focused more on the implications of transition risks on the financial management system (Baker, Bergstresser, Serafeim, & Wurgler, 2018; Dafermos, Nikolaidi, & Galanis, 2018; Clapp, 2018). In effect, these studies point to the increased need for an urgent response to climate change to ensure normal operations. Therefore, the evolution of green bonds is a confirmation of the effort that organizations are making to achieve sustainability in financial management.

Furthermore, the reviewed literature confirms that there is a positive correlation between sustainable business practices and prudent financial management. It was found that if financial management can be adequately be incorporated into business operations, it can promote sustainable business practices (Ehlers & Packer, 2017; Reboredo & Ugolini, 2019; Tang & Zhang, 2018; Voica, Panait, & Radulescu, 2015). Critical to achieving financial sustainability is the implementation of the concept of the green bond. According to Voica, Panait, and Radulescu (2015), investments in green bonds, especially in infrastructure, is critical to realizing the objective sustainability in financial management. Overall, the reviewed literature underscores the importance of this paradigm shift in enabling institutions to overcome the negative implications of climate change.

In spite of this promising potential, the findings reveal that the concept of green bonds faces some challenges. Some of these bottlenecks include the low impact of investors’ pro-environmental preferences on bond prices, significant volatility clustering, lack of suitable institutional arrangements, the aspect of minimum size, and the associated higher transaction expenses (Banga, 2018; Pham, 2016; Zerbib, 2019). These limitations indicate that some work is needed to be done to improve the productivity of green bonds in financial management. Undoubtedly, limitations ought to be addressed for any great idea to achieve the intended goal. Therefore, the reviewed literature underlies the necessity for relevant practitioners to respond to the raised issues to enable the concept of green bonds to help institutions to efficiently adapt to the negative impact of climate change on the financial management system.

Conclusion

The rapid globalization process continues to pose severe risks to various sectors due to the associated negative implications of climate change. The financial management system is one of the industries that have been affected by the issue of global warming. Like many other areas, sustainability has become the most effective tool in addressing this issue in the financial management industry. Through this approach, institutions have a license to engage in activities that promote the conservation of the atmosphere, thus averting the possibility of adverse climate change. The concept of green bonds has become a critical tool in enabling organizations to manage their finances efficiently, with the objective enhancing sustainable development.

The concept of green bonds has become a common practice among institutions as part of their grand strategy to respond to the issue of climate change. Government agencies, supranational corporations, and multinational enterprises are currently offering green bonds to fund projects intended to promote sustainability. This paradigm shift shows how the contemporary business and public entities have realized the importance of supporting individuals with the ideas focused on operating without posing negative implications on the environment. Within this period, government bodies have actively worked closely with private entities to provide green bonds to support programs anchored on sustainable grounds.

The rapid growth in the practice of green bonds is attributed to the rising concerns of climate change in financial management. Since the 1990s, many organizations have been concerned the increased cases of climate change are more likely to affect financial aspects, thus enabling them to seek an amicable resolution. The concept of green bonds was recognized as the most appropriate tool in responding to this problem. The issuance of green bonds can enable entities to find immediate solutions to the issue of climate change, with the ability to exert a long-term impact.

The widespread recognition that the issuance of green bonds continues to receive among institutions in attributed to the positive correlation between sustainability and financial management. When financial management is appropriately conducted, it has a greater potential to contribute to sustainable business operations. Critical to achieving this objective is the issuance of green bonds to finance sustainable projects. Besides the possibility of green bonds, its feasibility in contributing to sustainability is dented by some challenges. Some issues affecting this concept include the absence of appropriate organizational arrangements, the associated higher cost of the transaction, and significant volatility clustering. Therefore, the role of green bonds in aiding sustainability can be greatly improved should these bottlenecks resolved.