Sovereign Green, Social, Sustainability and Sustainability-Linked Bonds as Public Finance Tools Implementing Environmental Constitutionalism
Sovereign Green, Social, Sustainability and Sustainability-Linked Bonds as Public Finance Tools Implementing Environmental Constitutionalism

Summary/Abstract: Future generations and the present-day youth inherit at least two debts (with incoming crises attached). The first incoming crisis results from the accumulation of greenhouse gases in the atmosphere. This climate crisis requires taking steps to mitigate it and adapt to its consequences. Those mitigation and adaptation efforts have even been quantified. The global investment gap for climate change mitigation is estimated at 380–680 trillion USD annually. Moreover, a further 60–100 trillion USD must be additionally invested into climate change adaptation measures (annually!). Those two investment gaps need to be filled with private and public investments. The second incoming crisis results from the constant accumulation (up to now) of public debt – the sovereign debt crisis. Future generations will live in democratic states overburdened with debt – and current youth already does. Most democratic states already have debts of 60%, 100%, 150%, or even more of their annual gross domestic product (GDP). Sovereign debt crises are easily triggered, i.a., once the GDP growth rate sinks (shrinking economy), with rapidly rising interest rates, or when lenders lose their confidence in the solvency of a particular state (e.g. because of its shrinking population). However, this mixture of those two incoming crises with massive funding needs for climate change mitigation and adaptation measures significantly limits future generations in their activities and their (financial) options. The same limitations affect governments in jurisdictions where future generations will live. Meanwhile, climate change and environmental damage are legacies of our civilisation. Tackling those challenges requires undertaking financial efforts both at a global level and by particular states. The consequences of climate change and damage to the environment will deteriorate at a faster pace in the case of the inaction of states. In response to this zugzwang the article asserts that: 1) liberal constitutional democracies are legally obliged to undertake climate change mitigation and adaptation measures; 2) constitutional public finance could restrain issuing new public debt to finance climate change mitigation and adaptation measures, but the balanced budget clauses could be pierced once the new public debt is spent on those measures; 3) new public finance tools (sovereign green, social, sustainability, and sustainability-linked bonds) could implement constitutional obligations of states to undertake climate change mitigation and adaptation measures.

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