The bond market and the climate transition

40 minute read

In this joint piece with the Stockholm Sustainable Finance Centre and Stockholm School of Economics, we argue for the relevance for and discuss the functionality of bond markets for the climate transition. A growing number of financial market participants include climate change as a decisive factor in their asset management decisions.

There are several explanations for this, from attempts to protect the portfolio against financial risks to trying to contribute to climate change mitigation. The purpose of this report is to explain and highlight the importance and functionality of the bond market for investing that can have an impact on the climate transition. It presents ways for investors to use bond market mechanisms to include climate perspectives and to push the agenda in this area.

A significant part of the financial market is focused on entities that are not traded on the stock exchange but rather in the fixed income market. This is also where a lot of climate impact possibilities are to be found. Green bonds have their own unique place in the bond markets and the market for green bonds grew exponentially in the second half of the past decade.