Despite exhibiting remarkable growth, the green bond market still represents less than 1 percent of the global bond market. It is highly concentrated, having grown at a much slower pace in emerging economies, where more than half of green bond proceeds are financing renewable energy, leaving other sectors behind. New approaches to risk design and technology-based approaches are essential to untap the potential of green bond markets, particularly in Latin America and the Caribbean and other developing regions. The incorporation of financial mechanisms such as covered bonds and guarantees can adequately address the risk of the issues, making the market more attractive for investors. Enhanced regulation and education and leveraging efficiencies of new technologies such as distributed ledger technologies can substantially reduce monitoring and reporting costs, while improving transparency in the use of proceeds and market integrity. The ideas presented in this paper are intended to stimulate further dialogue with policymakers, regulators, and public financial institutions that are looking for efficient ways to meet their goals with regard to green investment needs and capital market development. Specifically, it explores two key dimensions: (i) the risk profile of the green bond instrument and (ii) the transaction costs associated with issuance of and reporting on green bonds.
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