GREEN BONDS

The green bond market has been growing rapidly over the last decade, with the initial value of USD 0.8 billion rising to over USD 760 billion of cumulative issuance in 2019. A green bond is a fixed-income instrument for financing or refinancing green projects, mainly covering renewable energy, energy efficiency, and clean transport. Eligible green projects promote climate policy, environmental protection, and the sustainability of economic resources. The bonds are labelled as green at the time of issuance if they are aligned with voluntary process guidelines contained in the Green Bond Principles (GBP). The establishment of the GBP in 2014 fostered the development of the green bond market by providing transparency and increasing the trust of investors. This paper presents the main components of GBP: use of proceeds, process for project evaluation and selection, management of proceeds and reporting. Different classification criteria are applied to describe various types and features of green bonds. The potential advantages and disadvantages of green bonds are considered from the perspective of the issuer and investor. The aim of this paper is to provide a theoretical framework and raise awareness of this important market instrument for funding sustainable development projects, by filling in the gap in the Croatian literature related to innovative sources of sustainable finance.