Climate-Driven Financial Innovations: Green Financial Tools

This chapter reviews the development and status quo in the markets of several financial tools increasingly adopted to combat climate change. Financial institutions are increasingly offering sustainable loans tied to specific environmental performance targets and to incentivize borrowers to adopt sustainable practices. The market for green bonds has also experienced significant growth. The emergence and development of ESG (Environmental, Social, and Governance) bonds reflect investors’ increasing demand for greater transparency regarding the sustainability practices of companies. The insurance sector has developed fast worldwide to enable diversification to meet climate-related insurance demands. These trends in the development of climate financial tools reflect a growing recognition of the urgent need to address climate change and promote sustainable practices.