Climate Finance and Green Bond Evolution

Informing Policy with Machine Learning Text Analytics

by Amber Jaycocks

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This research considers the case of financing the response to climate change, also known as climate finance, with emphasis on the labelled green bond market; climate finance is an exemplar of policy challenges in which private sector engagement is integral. This research aims to understand the evolution of themes associated with climate finance and green bonds to identify opportunities to enhance public-private cooperation and facilitate policymaking. The research exists at the intersection of policy analysis, climate science, environmental finance, and machine learning, and makes novel contributions across the data, method, and policy areas. The research employs topic modeling approaches in conjunction with sentiment and qualitative analyses on unstructured data to represent discourse surrounding (1) climate finance, and (2) green and climate bonds. The topic models aid in discovering interpretable, low-dimensional subspaces from corporas extracted from LexisNexis using a crowd-sourced search strategy. In the case of understanding the evolution of climate finance, dominant topics in climate finance news headlines are analyzed temporally and geographically. This is done using an unsupervised probabilistic generative topic model, Latent Dirichlet Allocation (LDA), along with an automated process for model selection and hyperparameter optimization. The LDA climate finance results indicate that topics representing the mobilization of capital and collective action are becoming more prevalent and are regarded more positively in recent years — suggesting a strong case for enhanced public-private partnerships. Labelled green bond opportunities are identified through news and blog articles that correspond to green bond sectors. Sector-specific topics are identified with Correlation Explanation (CorEx), an information-theoretic approach to topic modeling. In the semi-supervised version of CorEx, domain knowledge about the sectors is incorporated via topic anchors. The green bond topic results demonstrate the prevalence of certain investment areas, increasing interest that remains historically high, and market opportunities that may exist by focusing on industry and building sectors and consolidating water and pollution-control sectors. Overall, investments in market structuring and frameworks emphasizing monitoring, verification, and reporting will strengthen transparency and consistency, which will leverage the momentum in climate finance and assists in scaling up the green bond market. Furthermore, the methods and approaches herein have broad applicability to other complex policy settings.

Table of Contents

  • Chapter One

    Motivation And Policy Context: Climate Change, Climate Finance, And Green Bonds

  • Chapter Two

    An Economic Framework: Socially Responsible Engagement For Climate Financing

  • Chapter Three

    Corpora Creation: A Crowd‐Sourced Search Strategy With NLP

  • Chapter Four

    Methods: Unsupervised And Semi‐Supervised Topic Modeling, Hyperparameter Optimization, Evaluation, And Sentiment

  • Chapter Five

    The Evolution Of Climate Finance Using Topic Modeling

  • Chapter Six

    Green‐Climate Bond Opportunities Using Anchored Topic Modeling

  • Chapter Seven

    Model Extensions And Future Work: Word Embeddings, Dynamic Topic Models, And Stance With Sentiment

  • Chapter Eight

    Concluding Discussion: Human Behavior, Ethics, And Social Change

  • Appendix A

    World Economic Forum Global Risks

  • Appendix B

    Greenhouse Gas Emissions By Country And Industry

  • Appendix C

    Conference Of The Parties

  • Appendix D

    Parties And Observers From The UNFCCC

  • Appendix E

    Growth In Green Bonds

  • Appendix F

    World Bank Project Life Cycle

  • Appendix G

    Details Of Belsey And Ghatak's Economic Model

  • Appendix H

    Twitter Related Terms

  • Appendix I

    Common Topic Modeling Implementations

  • Appendix J

    Topic Model Selection Using VEM Versus Gibbs Sampling

  • Appendix K

    Rank Ordered Regions For Climate Finance Corpus

  • Appendix L

    Additional Topic Model Evaluations

  • Appendix M

    Topic Model Interactive Visualization

  • Appendix N

    Sentiment Metric Variations

  • Appendix O

    Explanation of Bonds ‐ A Fixed Income Instrument

  • Appendix P

    Climate Bonds Taxonomy

  • Appendix Q

    Types Of Green Bonds

  • Appendix R

    Emotion Category For Green Bond Corpus By Year

Research conducted by

This document was submitted as a dissertation in October 2019 in partial fulfillment of the requirements of the doctoral degree in public policy analysis at the Pardee RAND Graduate School. The faculty committee that supervised and approved the dissertation consisted of Elvira N. Loredo (Chair), Walter L. Perry, and Thomas J. Sullivan.

This publication is part of the RAND Corporation Dissertation series. Pardee RAND dissertations are produced by graduate fellows of the Pardee RAND Graduate School, the world's leading producer of Ph.D.'s in policy analysis. The dissertations are supervised, reviewed, and approved by a Pardee RAND faculty committee overseeing each dissertation.

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