diverse aspects associated with the issuance of green bonds

diverse aspects associated with the issuance of green bonds

The reviewed literature sheds significant insights into green bonds and their association with the concept of sustainability. A critical cross-examination of the outcomes is essential in highlighting emerging themes and issuance-related issues. Therefore, this section reports and discusses the implications of the findings from the reviewed articles to understand diverse aspects associated with the issuance of green bonds.

The results indicate that the concept of green bonds has gained immense popularity among various institutions in the recent past, with many of them focusing on financing programs meant for achieving sustainability. This outcome delineates a paradigm shift in the management of finances by firms in the contemporary world. As indicated by Flammer (2019), multiple organizations, notably, 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 government agencies in many countries have recently diversified their climate change mitigation efforts working closely with multinationals and local private entities. The growing focus on reversing global warming highlights the increasing efforts by diverse institutions to promote sustainable practices in their operations. Enterprises are actively using green bonds to finance projects intended to encourage sustainable activities (Hachenberg & Schiereck, 2018; Zhou, & Cui, 2019). Therefore, this evidence affirms the utilization of green bonds as a means of reversing the impact of global warming 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. Since the 1990s, many entities 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), who note that green bonds are growingly applied in financing 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 climate change.

The changing value of the US municipal bond provides the best example of the growing focus on sustainability in financial management. The review of the available literature revealed that most 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 generating 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 (Biais & Green, 2019). Indeed, without adequate financing, it is significantly challenging to respond to an impending problem. Therefore, the reviewed literature confirms that the need for funds to support sustainable projects laid the foundation for the rise of green bonds.

The findings of the review also implicate climate change to negative impacts on the stability of financial systems. Notably, climate change-related risks such as transition and physical issues have potentially harm financial transactions in many ways. However, most of the studies have tended to focus 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 underscore the need for an urgent response to climate change to ensure normal operations. In essence, the evolution of green bonds confirms the efforts made by national and global organizations towards achieving sustainability in financial management.

Moreover, the analyzed literature confirms a positive correlation between sustainable business practices and prudent financial management. The efficient incorporation of financial management into business operations can go a long way in promoting 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. As observed by Voica, Panait, and Radulescu (2015), investments in green bonds, especially in infrastructure, is critical to realizing the objective of sustainability in financial management. Overall, the reviewed literature accentuates the importance of this paradigm shift in enabling institutions to overcome the negative implications of climate change.

In spite of their promising potential, green bonds face various challenges. Some of the most striking 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 additional work is needed to improve the productivity of green bonds in financial management. Undoubtedly, for any great idea to achieve the intended goal, any inherent drawbacks ought to be adequately addressed. Indeed, the reviewed literature underlines the necessity for financial practitioners to respond to the fundamental weaknesses. Notably, they should ensure that green bonds support institutions’ attempts to adapt to the negative impact of climate change on financial management systems.

Conclusion

The rapid globalization process continues to threaten various sectors of society due to the associated negative implications of climate change. The financial management system is one of the segments that have been affected most by the issue of global warming. As with many other areas, sustainability has become a viable tool in addressing this issue in financial management circles. Institutions that embrace sustainable practices engage in activities that promote the conservation of the planet, thus averting the possibility of adverse climate change. The concept of green bonds has gained recognition due to its potential in enabling organizations to manage their finances efficiently, thus enhancing sustainable development.

The application for and issuance of green bonds have become standard practices among institutions as part of their grand strategy to respond to climate change. Government agencies, supranational corporations, and multinational enterprises currently offer green bonds to fund projects aimed at supporting sustainability initiatives. This paradigm shift suggests that contemporary business and public entities have realized the importance of helping individuals or groups whose focus entails operating without posing negative implications on the environment. In this new realm, public institutions have tended to actively collaborate with private entities in the provision of green bonds to support programs anchored on sustainable grounds.

The rapid growth in the practice of green bonds is attributed to the growing appreciation of the impact of climate change mitigation on financial management. Since the 1990s, many organizations have raised concerns about the worsening of climate change its potential toll on financial aspects, thus prompting the search for practical answers. Governmental and non-governmental bodies have identified green bonds as one of the most appropriate tools in responding to this problem. The issuance of green bonds can enable entities to find immediate solutions with the ability to exert a long-term impact on the issue of climate change.

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. The effective execution of financial management has the potential to enhance sustainable business operations. Critical to achieving this objective is the issuance of green bonds to finance sustainable projects. Nonetheless, the feasibility of green bonds in contributing to sustainability is undermined by several challenges. Some of the significant impediments include the absence of appropriate organizational arrangements, the high cost of processing transactions, and the considerable volatility clustering. Overall, the role of green bonds in aiding sustainability can be significantly improved by addressing these critical limitations.