The World Bank's innovative solution to climate change
The capital markets will need to play an important role in mobilizing private funding for climate change mitigation and adaption projects. However, to raise the funds required to make an impact on the fight against climate change, investment products must be designed to appeal to investors with a substantial asset base. Pension funds and sovereign wealth funds have large allocations to fixed income. Green bonds are an example of an innovative fixed income investment product that appeals to investors for this asset class and can pave the way for the next phase of products to mobilize significant capital to finance the greatest challenge faced by our generation.
Climate change is a problem of global proportions
Estimates of financing needed to mitigate the effects of climate change range from about US$200bn to US$1,000bn a year. At least tens of billions of dollars each year should be added to finance the cost of adaptation caused by an inevitable amount of global warming that the world will experience. Clearly, the task is too great for government resources alone to tackle, especially in developing countries. Private investment is urgently needed to supplement scarce government funds and credit. On a large scale, this can only be generated through the global financial markets, with innovative solutions across asset classes. New products must have the right financial incentives to attract private investment and use public credit efficiently.
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