Green bonds: a mechanism for bridging the adaptation gap?

The paper finds that while green bonds can finance adaptation, they do so to a very limited extent, with mitigation receiving approximately 95% of current funding. Between March 2010 and April 2019, only 5% of all green bonds issued included adaptation as an eligible project category. The study identifies significant mismatches in geography, project scale, and the types of activities funded, noting that adaptation needs are often too small-scale or lack the revenue streams required for traditional bond issuance. Furthermore, a low level of corporate understanding of physical climate risk limits the adoption of these instruments. The author concludes that green bonds alone will be too slow to close the adaptation finance gap but can serve as awareness-raising tools to encourage broader risk management and investment.

• Green bonds currently provide very little funding for adaptation compared to mitigation, with mitigation accounting for about 95% of current green bond funding.
• Historical data from March 2010 to April 2019 shows that only 5% of all green bonds issued (162 out of 3,266) were categorized as adaptation, meaning they included adaptation as an eligible project category in their frameworks.
• Among corporate green bonds categorized as adaptation, the real estate sector was the largest issuer (40% or 8 issuances), followed by forestry, including pulp and paper (20% or 4 issuances).
• There were no corporate green bond issuances in the health or agriculture sectors, despite these being identified as priority areas for adaptation investment.
• Geographic mismatches exist where regions with high adaptation needs, such as South Asia, the Middle East, and Africa, have undeveloped green bond markets, while regions with developed markets, like Europe and North America, show lower prioritization of adaptation in their NDCs.
• The high transaction costs of green bonds make them unsuitable for small-scale adaptation projects, such as community-level initiatives or those involving medium-sized, small and micro-enterprises (MSMEs), as most issuances typically exceed $100 million to remain cost-efficient.
• Private sector green bonds primarily fund 'hard' adaptation components (concrete assets and infrastructure) but often neglect 'soft' components, such as capacity building and behavioral change, which are essential to avoid maladaptation.
• The scaling of adaptation finance via green bonds is hindered by a low level of corporate understanding and disclosure of physical climate risks, with many investors prioritizing transition risks over physical risks.
• Green bonds can function as awareness-raising tools; the review processes, such as Second Opinions, can help corporations identify climate risks and improve institutional thinking on resilience.

APA

Tuhkanen, H. (2020). Green bonds: a mechanism for bridging the adaptation gap? Stockholm Environment Institute. https://www.sei.org/wp-content/uploads/2020/02/sei-working-paper-green-bonds-tuhkanen.pdf

Chicago

Tuhkanen, Heidi. Green bonds: a mechanism for bridging the adaptation gap? Stockholm Environment Institute, 2020. https://www.sei.org/wp-content/uploads/2020/02/sei-working-paper-green-bonds-tuhkanen.pdf.

Wikipedia

{{cite report |last1=Tuhkanen |first1=Heidi |title=Green bonds: a mechanism for bridging the adaptation gap? |publisher=Stockholm Environment Institute |date=February 2020 |url=https://www.sei.org/wp-content/uploads/2020/02/sei-working-paper-green-bonds-tuhkanen.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{tuhkanen2020green, author = {Tuhkanen, Heidi}, title = {{Green bonds: a mechanism for bridging the adaptation gap?}}, institution = {Stockholm Environment Institute}, year = {2020}, month = feb, url = {https://www.sei.org/wp-content/uploads/2020/02/sei-working-paper-green-bonds-tuhkanen.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }