Climate change is one of the world's major challenges to overcome. After the 2015 Paris Agreement, 196 countries around the globe agreed to undertake policy measures for keeping the average rise of global temperature below 2° Celsius by 2050. The main goal of this global governance framework is to help the parties mobilize financial resources and mitigate the effects of climate change. Under the agreement, every country must regularly report its contributions to emission reductions.
The governmental budgets worldwide will not be sufficient to finance the necessary climate change mitigation and adaptation infrastructure projects. On the one hand, there exists a large investment gap in developing countries of around 530 billion United States dollar (USD) that need to be invested by 2030 solely in the energy sector to meet the countries’ sustainable infrastructure needs. Since the urbanization rate is rapidly increasing, especially cities in emerging economies urgently need large amounts of capital. On the other hand, large institutional investors are increasingly introducing Environmental, Social, and Governance (ESG) criteria in their investment decisions and incorporating ‘green’ mandates in their statutes. One potential instrument to meet policymaker’s and investor’s needs are green bonds (GBs).
Therefore, this research aims to investigate the market barriers for municipal green bonds (MGBs) in Colombia. Since the topic has a niche character, the research method is based on a literature review and three experts’ interviews to add an insightful perspective of market practitioners. The structural barriers identified as obstacles to market development were macroeconomic variables that limit the access to capital markets, political variables such as corruption, conflicts, rivalries between parties and cortoplacismo as well as market skepticism to-wards new financial instruments and ‘green’ topics. Additionally, some specific market barriers of the green bonds market are significantly high transaction costs, lack of technical knowledge, dependence on external market actors, liquidity, and greenwashing risk. The last chapter of this master thesis presents policy recommendations for three key market actors: Colombian municipalities, the central government, and multilateral development banks.
Inhaltsverzeichnis (Table of Contents)
- 1 Introduction
- 2 Theoretical framework
- 2.1 Climate change vulnerability and investment gap
- 2.2 Cities' importance for climate change action
- 2.3 GBs definition and relevance
- 2.4 Method
- 3 The GBs market
- 3.1 How does a GB become 'green'? Categorization, types, and market actors
- 3.2 The GBs issuance process
- 3.3 Evolution and state of the GBs market and sectors
- 3.4 The current state of the GBs market in Colombia
- 4 Opportunities and benefits for the issuance of MGBs in Colombia
- 4.1 Change in paradigms in the financial markets
- 4.2 Demand and supply asymmetries
- 4.3 Expansion of investor's base and access to financial sources
- 4.4 Economic incentives
- 4.5 Signaling for environmental commitment and international political support
- 5 Market conditions for the issuance of MGBs in Colombia
- 5.1 Institutional context and legal framework for GBs issuances
- 5.2 Legal framework for municipal bonds issuances
- 5.3 Municipal financing
- 5.4 Current debt, payment capacity, and risk ratings of Colombian cities
- 6 Challenges and market barriers for the issuance of MGBS in Colombia
- 6.1 Structural barriers
- 6.1.1 Macroeconomic variables and limited access to capital markets
- 6.1.2 Political conditions
- 6.1.3 Skepticism of market actors
- 6.1.4 Specific barriers
- 6.1.5 Transaction costs
- 6.1.6 Transparency, credibility, and greenwashing risk
- 6.1.7 Know-how and technical problems
- 6.1.8 Dependence of external actors
- 6.1.9 Liquidity risk
- 6.1 Structural barriers
- 7 Policy recommendations
- 7.1 Policy recommendations for municipalities
- 7.2 Policy recommendations for regulators and central government
- 7.3 Policy recommendations for multilateral and national development banks
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This master's thesis investigates the market barriers hindering the issuance of municipal green bonds (MGBs) in Colombia. The research employs a literature review and expert interviews to provide insights into the practical challenges. The study aims to identify these barriers and ultimately offer policy recommendations for Colombian municipalities, the central government, and multilateral development banks to foster the growth of the MGB market.
- Market barriers for Municipal Green Bonds (MGBs) in Colombia
- Analysis of macroeconomic, political, and market-specific obstacles
- Assessment of opportunities and benefits of MGB issuance
- Evaluation of the current legal and institutional framework
- Policy recommendations for promoting MGB market development
Zusammenfassung der Kapitel (Chapter Summaries)
1 Introduction: This chapter introduces the global context of climate change mitigation and the urgent need for financing sustainable infrastructure projects. It highlights the growing role of green bonds (GBs) in addressing this challenge and establishes the research focus on the Colombian municipal green bond market, outlining the methodology (literature review and expert interviews) employed to investigate market barriers and opportunities.
2 Theoretical framework: This chapter provides the theoretical foundation for the study. It explores the vulnerability of cities to climate change, emphasizing their crucial role in climate action. The chapter defines green bonds, detailing their relevance and mechanisms, before outlining the research methodology, including its limitations given the niche nature of the subject.
3 The GBs market: This section offers a comprehensive overview of the global green bond market. It explains the criteria for a bond to qualify as "green," categorizes different types of green bonds, and identifies key market actors. The chapter then traces the evolution of the market, analyzing its current state, and specifically focusing on the status of the market in Colombia, laying the groundwork for later chapters focusing on opportunities, challenges, and policy recommendations for the country.
4 Opportunities and benefits for the issuance of MGBs in Colombia: This chapter explores the potential opportunities and advantages associated with the issuance of municipal green bonds in Colombia. It delves into shifting paradigms in financial markets, examines demand and supply dynamics, and analyzes the potential to expand investor bases and access to new financial sources. Economic incentives and the signaling effect of environmental commitment are also explored as crucial factors influencing the attractiveness of MGBs.
5 Market conditions for the issuance of MGBs in Colombia: This chapter examines the institutional context and legal framework relevant to the issuance of green bonds in Colombia. It specifically analyzes the legal framework for municipal bond issuances and explores the current municipal financing landscape. The chapter also assesses the debt levels, payment capacities, and risk ratings of Colombian cities, which provide a critical context for evaluating the feasibility of MGB issuance.
6 Challenges and market barriers for the issuance of MGBS in Colombia: This chapter identifies and analyzes the key challenges and market barriers preventing the growth of the MGB market in Colombia. It categorizes barriers as structural (macroeconomic limitations, political conditions, market skepticism), and specific barriers (high transaction costs, lack of knowledge, reliance on external actors, liquidity risks, and greenwashing risks). Each barrier is thoroughly discussed, providing a nuanced understanding of the complexities involved.
7 Policy recommendations: This chapter offers targeted policy recommendations for key actors involved in the Colombian MGB market. It provides specific suggestions for municipalities, regulators and the central government, and multilateral development banks, each tailored to their respective roles and capabilities to promote the successful development and growth of the Colombian MGB market.
Schlüsselwörter (Keywords)
Green Bonds, Green Municipal Bonds, Colombia, Climate Change, Market Barriers, Municipal Finance, Sustainable Development, ESG Investing, Policy Recommendations, Emerging Markets.
Frequently asked questions
What is the main focus of the "Language Preview" document?
The document provides a comprehensive overview of a master's thesis investigating market barriers hindering the issuance of municipal green bonds (MGBs) in Colombia. It includes a table of contents, objectives, key themes, chapter summaries, and keywords.
What is the purpose of the research outlined in the document?
The research aims to identify barriers to the issuance of municipal green bonds in Colombia and offer policy recommendations to promote the growth of the MGB market. These recommendations are targeted at Colombian municipalities, the central government, and multilateral development banks.
What methodology was used for the research?
The research employs a literature review and expert interviews to gain insights into the practical challenges related to the issuance of MGBs in Colombia.
What are some of the key themes explored in the document?
Key themes include market barriers for Municipal Green Bonds (MGBs) in Colombia, analysis of macroeconomic, political, and market-specific obstacles, assessment of opportunities and benefits of MGB issuance, evaluation of the current legal and institutional framework, and policy recommendations for promoting MGB market development.
What type of barriers are discussed in the context of MGB issuance in Colombia?
The document discusses both structural barriers (e.g., macroeconomic variables, political conditions, market skepticism) and specific barriers (e.g., transaction costs, transparency issues, lack of know-how, dependence on external actors, liquidity risk, and greenwashing risk).
What opportunities and benefits are considered for the issuance of MGBs in Colombia?
The document explores opportunities such as changing paradigms in financial markets, demand and supply dynamics, expansion of investor bases, access to financial sources, economic incentives, and the signaling effect of environmental commitment.
Who are the target recipients of the policy recommendations?
The policy recommendations are directed towards municipalities, regulators and the central government, and multilateral and national development banks.
What are the main keywords associated with this document?
The main keywords are Green Bonds, Green Municipal Bonds, Colombia, Climate Change, Market Barriers, Municipal Finance, Sustainable Development, ESG Investing, Policy Recommendations, and Emerging Markets.
What does Chapter 3 cover?
Chapter 3 offers a comprehensive overview of the global green bond market, explaining the criteria for a bond to qualify as "green," categorizing different types of green bonds, and identifying key market actors. It also traces the evolution of the market and analyzes its current state, with a specific focus on the status of the market in Colombia.
What does Chapter 5 analyze?
Chapter 5 examines the institutional context and legal framework relevant to the issuance of green bonds in Colombia, focusing on municipal bond issuances, the current municipal financing landscape, and the debt levels, payment capacities, and risk ratings of Colombian cities.
- Quote paper
- María Torres (Author), 2021, Should Colombian Cities Issue Green Bonds?, Munich, GRIN Verlag, https://www.grin.com/document/1568331
