This paper assesses the potential for recovery bonds to help sovereigns raise capital to fund a sustainable and climate-resilient post-COVID recovery. As climate impacts become more severe, countries need targeted approaches to capital borrowing and deployment that is designed to decrease emissions, increase renewable energy distribution and other climate mitigation and adaptation solutions, and create long-lasting green jobs for a secure economy.
Recovery bonds link a country’s borrowing to the targeted deployment of capital, designed to facilitate a low-carbon sustainable recovery that can bring economic, social and climate priorities together. The paper lays out a prospective blueprint to facilitate the issuance of recovery bonds, focusing on two potential use cases: sovereign green bonds as part of issuances financing recovery, and bonds linked to fossil fuel subsidy reform (FFSR).
Sovereign green recovery bonds and FFSR bonds differ in their contractual development, but both produce a climate-beneficial outcome. While green bonds focus on the use of the proceeds that are reserved for qualified projects, a bond linked to the reduction of fossil fuel subsidies focuses instead on how bondholders could be repaid.