Municipal bond investors are increasingly confident that as climate change accelerates, cities will be forced to prioritize projects that seek to mitigate the consequences, according to a I conducted.

The findings suggest investors believe such climate-related investments are safer—and more likely to be repaid—than other types of long-term projects that may have less of a chance of happening because of limited funds. This can be seen in the higher prices—and lower rates of return—investors are willing to pay for longer-term municipal bonds certified by the compared with similar debt that doesn't carry that certification.

Cities and other governments been what if anything to do about . My research shows that there's a reward, in terms of relatively low financing costs, to pursue long-term climate action now. It suggests investors have already acknowledged the consequences of human-induced climate change are real and have created a financial incentive for those cities that are trying to adapt. And this could help fuel a faster transition to a low-carbon world.

It's unclear if this climate premium holds for other types of debt, such as that issued by companies or federal governments. The market for Climate Bonds Initiative-certified bonds is still quite young, with worldwide since 2014—just a drop in the bucket for a market .

Beyond the market that I looked at, there is a much larger market for self-labeled "green" and climate-aligned bonds that are not certified. Researchers are trying to determine if investors are willing to pay a premium—dubbed a "greenium"—when bonds are issued by corporations or governments to fund any environmental or climate-related projects. Currently, the results have been inconclusive, as have reported . If a premium on all green and climate-aligned bonds exists, this would supply further evidence of an subsidy provided to borrowers who claim to use their proceeds for environmental or -related purposes.

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