Rise of the Adaptation Bonds

Adaptation-focused debt instruments are having a moment

Author

Louie Woodall
August 08, 2024

AI-generated via DALL-E

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TL;DR

  • Adaptation-themed bonds are raising climate capital from California to Colombia

  • Issuers so far include governments, development banks, and cities including San Francisco and Stockholm

  • For investors, adaptation-themed bonds present a double benefit — direct coupon payments from the debt itself, and the potential for improved returns from other assets that are protected by the climate-proofing measures they finance

  • The development of clear standards on what counts as a climate adaptation investment should help scale the market

This article was initially published by ImpactAlpha, a subscription-based, multi-channel digital media platform providing investing news for a sustainable edge.

Bonds that protect their issuers from climate shocks are making headlines.

This November, California residents will vote on a first-of-its kind climate bond that would raise US$10bn to harden the Golden State against floods, droughts, wildfires, extreme heat, and other hazards.

In Colombia, the International Finance Corporation is rolling out a US$50mn biodiversity bond that will pay for climate-smart agriculture and mangrove restoration, both critical to the country’s climate resilience. Cities in the US and Europe, banks in Latin America, and entire countries have also issued bonds to finance their adaptation needs.

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