Capital markets have been a source of funding for green investments for a number of years, but until recently, financing was predominantly from equity. Private equity, venture capital and government funding were the most accessible sources of capital when green technologies such as solar and wind were in the early stages of their development. Recently, declining costs and increased environmental awareness have been propelling growth in the renewable energy industry. Nowadays as renewable energy technologies have become more tested, proven and refined, funders have naturally progressed along the capital structure towards public equity and debt financing to support growth and scale.

Considering the increasingly positive outlook on the sector's growth prospects, recently institutional funds (global pension funds, insurance companies and other institutional investors) and individual investors have been looking to tap into this opportunity to invest in the sector. Although funding through traditional sources (government and supranational banks) continues, there is an immediate need for higher participation from private (non-government) sources in meeting rising financing requirements so as to ensure rapid yet sustainable expansion of the industry in the coming years.

Encouraged by rising investor interest, newer products such as green bonds have emerged. It is important to have consensus on the definitions of and application for Green Bonds. Recognizing this need, a consortium of investment banks came together to form a drafting committee for a set of Green Bond Principles (GBP). The Principles, released in January 2014, outline guidelines for the issuance of a Green Bond. Not only is the aim to provide clarity to potential issuers, but also to standardize practices and procedures that will improve transparency for underwriters and investors. While the guidelines are voluntary, they are currently supported by 25 investment banks.

According to the GBP, the defining characteristic of a Green Bond is how the proceeds are utilized. Still evolving are the sectors in which the proceeds must be invested, but for now the list includes:

The expanding scale of projects and capital-intensive nature of the sector have led to rising financing needs, both in the utility-scale and small-scale renewable energy projects. At the same time, leading financial institutions have provided the impetus for expanded green investing.

The Climate Bonds Initiative released its Green Climate Bonds Underwriters League Table for 2013. Some $10 billion of Green Climate Bonds were issued in 2013 - the biggest year yet - and one which saw new issuers, investors and underwriters join the market. The recently updated League Table for 2014 will also give an idea of how new issuers keep coming into the market.

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