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Kathrin Berensmann, Florence Dafe and Nannette Lindenberg

This chapter addresses the potential and challenges of green bonds to finance ecologically sustainable investments. Governments, investors and the media have hailed green bonds as a key instrument of climate finance because of their prospects for tapping the trillions of dollars held in global bonds markets and by institutional investors. Does the explosive issuance of green bonds mean that bonds markets are ‘greening’? This chapter details the growth of the green bonds market, the appeal of green bonds to investors and challenges to the market’s development. One major conclusion is that a weak governance framework limits how much green bonds can contribute to sustainable development. In order to ensure that the green bonds market matures with integrity, weaknesses in governance structures must be addressed. The chapter concludes by providing policy recommendations for developing the green bonds market.