Green Bonds in Public–Private Partnerships

The document argues that green project bonds can provide a viable alternative to traditional bank lending for green infrastructure PPPs, especially in the wake of Basel III regulations. It details the characteristics of project bonds, the risks involved—such as construction risk and negative carry—and the necessity of credit enhancements to achieve investment-grade ratings. The paper also provides guidance for public procurers on integrating bond financing into tender processes and highlights the growing global market for climate-themed bonds.

• The 2008 financial crisis and subsequent regulatory frameworks, specifically Basel III, have reduced the appetite of commercial banks for long-term infrastructure financing due to new liquidity and stability ratios.
• Project bonds offer advantages over bank loans, including lower interest rates, longer maturities, and higher liquidity through secondary market tradability, though they typically require larger issue sizes—generally exceeding EUR 100 million—to be attractive to institutional investors.
• Significant risks associated with project bonds include construction risk (cost overruns and delays), placement risk (pricing volatility at issuance), and 'negative carry', where interest is paid on the full bond amount before the funds are fully spent during construction.
• Many green project bonds struggle to reach investment-grade ratings (BBB- or higher) without credit enhancements, as 67% of projects assessed over 20 years were rated below investment grade.
• Multilateral Development Banks (MDBs) can catalyze private investment in green PPPs through financial, design, policy, and demonstration additionality, including providing partial credit enhancements to raise bond ratings to 'A' or 'AA'.
• The global market for climate-themed bonds is expanding, with outstanding green-related bonds valued at US$502.6 billion as of 2014, and a projected need for US$36 trillion in clean energy investment through 2050 to limit global temperature increase to 2 degrees Celsius.
• Public procurers must adapt tender processes to include bond financing, as bond issuance takes longer than bank lending and introduces pricing volatility between the bid acceptance and the actual issuance.

APA

Ordonez, C. D., Uzsoki, D., & Dorji, S. T. (2015). Green Bonds in Public–Private Partnerships. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/green-bonds-public-private-partnerships.pdf

Chicago

Ordonez, Carlos Dominguez, David Uzsoki, and Sangay Thinley Dorji. Green Bonds in Public–Private Partnerships. International Institute for Sustainable Development, 2015. https://www.iisd.org/system/files/publications/green-bonds-public-private-partnerships.pdf.

Wikipedia

{{cite report |last1=Ordonez |first1=Carlos Dominguez |last2=Uzsoki |first2=David |last3=Dorji |first3=Sangay Thinley |title=Green Bonds in Public–Private Partnerships |publisher=International Institute for Sustainable Development |date=February 2015 |url=https://www.iisd.org/system/files/publications/green-bonds-public-private-partnerships.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{ordonez2015green, author = {Ordonez, Carlos Dominguez and Uzsoki, David and Dorji, Sangay Thinley}, title = {{Green Bonds in Public–Private Partnerships}}, institution = {International Institute for Sustainable Development}, year = {2015}, month = feb, url = {https://www.iisd.org/system/files/publications/green-bonds-public-private-partnerships.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }