What are green bonds?
Green bonds have been in circulation since 2007, when the European Investment Bank issued a “Climate Awareness Bond”. Since then, the value of green bonds has grown to an estimated USD 526 billion in 2025 (Coherent Market Insights 2025).
Green bonds are a type of fixed-income instrument that retain a conventional or “vanilla” bond structure, comprising:
- Coupon payments: Investors receive a series of fixed or variable interest payments (the coupon) from the issuer over the life of the bond.
- Principal repayment: At the bond’s maturity, the original principal amount is returned to the investor.
The “green” label doesn’t change this fundamental debt agreement. However, green bonds include a framework for defining eligible investments or projects and providing associated impact reporting, in order to demonstrate the non-financial benefits of the bonds to investors.
High demand: what’s driving the green bond market?
Green bonds often have a lower yield due to what is called the “greenium”, the premium that investors are willing to pay for a green bond over an equivalent vanilla bond. The greenium is typically 2-8 basis points (0.02-0.08%) and is the result of high demand. Demand is driven by a number of factors, in particular:
- Environmental Social and Governance (ESG) mandates: A significant portion of the capital in financial markets, particularly from large pension funds, sovereign wealth funds, and insurance companies, is governed by ESG mandates. For some investors, buying green bonds is a requirement of their investment policy.
- Portfolio diversification: Green bonds often have low correlation with other asset classes, such as “green equities” or vanilla fixed-income products, which can help mitigate overall portfolio risk for investors.
High demand means that green bonds tend to have a higher price in the secondary market, creating an opportunity for capital gain if an investor decides not to hold the bonds until maturity.
Despite headwinds in the US, the global market for green bonds is buoyant and continues to expand, driven in a large part by European investors. Growth in value is expected to increase at 10.3% per year until 2032 (Coherent Market Insights 2025).
How green bonds benefit project finance
From the perspective of an ESG project recipient, green bonds provide an alternative, specifically allocated source of finance that would not have otherwise existed (or perhaps only at interest rates that would have made the project unviable). Green bonds in turn attract other sources of loan finance, including:
- Concessionary finance (from for example climate funds) that may be provided at lower interest rates,
- Guarantees (from for example multi-lateral development banks) that help de-risk a project for other financiers; and even
- Grants, which often come with significant constraints, but do not require repayment.
These varied sources can be a way of creating “blended” finance that has lower overall interest rates on associated debt than would normally be expected. Blended finance gives high risk projects a chance to access finance too. In some cases, a project may also use green bond debt to leverage private equity or venture capital.
Growth in climate resilience bonds
With the growing realisation that adverse climate impacts will be inescapable, attention has turned to building resilience and with it, the creation of a new category of green bonds called “climate resilience bonds”. The first dedicated climate resilience bond was issued in September 2019 by the European Bank for Reconstruction and Development (EBRD), based on the newly published “Climate Resilience Principles” from the Climate Bonds Initiative.
Most issues since then have been limited to governments, but interest continues to grow. The anticipated global cost of adapting to new climate hazards is vast, with requirements estimated at USD 212 billion per year by 2030 for developing countries alone (CPI 2023). Current adaptation finance falls well short of this target, reaching an all-time high of USD 63 billion in 2023. Of this, agriculture, forestry and land-use, a critical sector with many vulnerabilities and wide-ranging adaptation needs, received only USD 7 billion (11%). Tracked adaptation finance remains dominated by public actors (98%), with fragmented flows from the private sector. For the situation to change, the private sector will need to play its part.
The Climate Bonds Initiative has recently published a new “Climate Bonds Resilience Taxonomy” methodology in 2024 (CBI 2024). The methodology provides clarity on what constitutes a climate resilience investment, by setting out a classification system and associated screening criteria. Issuers of climate resilience bonds will commission independent reviewers or certifiers to provide assurance that their bonds follow this or a similar methodology. There is optimism that the Climate Bonds Resilience Taxonomy will help unlock significant amounts of new finance, with BNP Paribas (2024) suggesting up to USD 3 trillion in investments by 2030.
Challenges and solutions for the agriculture sector
The majority of institutional investors look for a minimum bond size of USD200 million in developed countries and USD100 million in developing countries (GCA 2021). This is a significant hurdle to issuing a green bond in the agriculture sector, where the cost of issuing bonds that support small farm business are prohibitive. Therefore, aggregation mechanisms to bundle individual projects where climate resilience needs are fulfilled through small-scale resilience projects will need to be developed. An example of such a mechanism is provided by the Investher Climate Resilience Bond, developed by the Grameen Foundation, which targets sustainable agri-food systems in Uganda (The Lab 2024).
Resilience Constellation is working with off-takers and agribusinesses to develop finance solutions for small farm businesses in emerging markets. We believe that climate resilient bonds will provide a key source of debt finance for a range of adaptation measures that will help farmers build their resilience, including establishment of climate resilient crop varieties, water conservation and storage, improved soil management and modified agri-food logistics.
If you are interested in the use of climate resilient bonds for agricultural projects, please get in touch.
John Mayhew
COO Resilience Constellation
References
BNP Paribas 2024 Unlocking climate resilience: a new taxonomy for sustainable investment, Published by BNP Paribas. https://globalmarkets.cib.bnpparibas/unclocking-climate-resilience/
CBI 2024 Climate Bonds Resilience Taxonomy Methodology. Published by Climate Bonds Initiative. https://www.climatebonds.net/files/documents/supporting-documents/Climate-Bonds_Resilience-Methodology_2024.pdf
CMI 2025 Green Bond Market Analysis & Forecast: 2025-2032. Published by Coherent Market Insights. https://www.coherentmarketinsights.com/market-insight/green-bond-market-6086#:~:text=According%20to%20the%20Climate%20Bonds,Forecast%20Period%202025%20to%202032
CPI 2023 Global Landscape of Climate Finance 2023. Published by Climate Policy Initiative. https://www.climatepolicyinitiative.org/publication/global-landscape-of-climate-finance-2023/
GCA 2021 Green Bonds for Climate Resilience: a guide for issuers. Report prepared by the Climate Bonds Initiative for the Global Center on Adaptation, in cooperation with the European Bank for Reconstruction and Development (EBRD). Published by Global Centre on Adaptation. https://gca.org/wp-content/uploads/2021/11/A-guide-for-issuers-Full-report-online.pdf
The Lab 2024 Investher Climate Resilience Bond: instrument analysis. Published by Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2024/09/InvestHer-Climate-Resilience-Bond_Instrument-Analysis.pdf