Should Colombian Cities Issue Green Bonds?

Master's Thesis from the year 2021 in the subject Economics - Case Scenarios, grade: 2, University of Bayreuth (Economics), language: English, abstract: Climate change is one of the world's major challenges to overcome. After the 2015 Paris Agreement, 196 countries around the globe agreed to undertake policy measures for keeping the average rise of global temperature below 2° Celsius by 2050. The main goal of this global governance framework is to help the parties mobilize financial resources and mitigate the effects of climate change. Under the agreement, every country must regularly report its contributions to emission reductions. The governmental budgets worldwide will not be sufficient to finance the necessary climate change mitigation and adaptation infrastructure projects. On the one hand, there exists a large investment gap in developing countries of around 530 billion United States dollar (USD) that need to be invested by 2030 solely in the energy sector to meet the countries’ sustainable infrastructure needs. Since the urbanization rate is rapidly increasing, especially cities in emerging economies urgently need large amounts of capital. On the other hand, large institutional investors are increasingly introducing Environmental, Social, and Governance (ESG) criteria in their investment decisions and incorporating ‘green’ mandates in their statutes. One potential instrument to meet policymaker’s and investor’s needs are green bonds (GBs). Therefore, this research aims to investigate the market barriers for municipal green bonds (MGBs) in Colombia. Since the topic has a niche character, the research method is based on a literature review and three experts’ interviews to add an insightful perspective of market practitioners. The structural barriers identified as obstacles to market development were macroeconomic variables that limit the access to capital markets, political variables such as corruption, conflicts, rivalries between parties and cortoplacismo as well as market skepticism to-wards new financial instruments and ‘green’ topics. Additionally, some specific market barriers of the green bonds market are significantly high transaction costs, lack of technical knowledge, dependence on external market actors, liquidity, and greenwashing risk. The last chapter of this master thesis presents policy recommendations for three key market actors: Colombian municipalities, the central government, and multilateral development banks.