Instrument Overview
A General Obligation (GO) bond is a type of municipal bond that cities issue to raise funds for public projects. Unlike revenue bonds, GO bonds are backed by the full faith and credit of the issuing government, meaning the city commits to repaying bondholders using its general revenues—primarily tax income. This makes them one of the most secure forms of municipal debt and attractive to investors. Cities commonly use GO bonds to fund infrastructure projects that support community development, public services, or, increasingly, climate mitigation and resilience efforts.
Why It Matters for Cities
- Allows cities to raise large-scale capital for climate-related infrastructure.
- Ideal for funding long-term public goods such as clean transport, stormwater systems, and energy-efficient municipal buildings.
- Provides predictable financing with relatively low interest rates.
- Encourages forward planning and long-term investment in climate goals.
Key Features
- Long maturity periods, often ranging from 10 to 30 years.
- Low-risk investment backed by taxing authority of the municipality.
- Typically requires voter approval or legislative authorization.
- Generally receives high credit ratings due to repayment security.
- Suitable for large-scale, capital-intensive public infrastructure.
How It Works
- The city identifies infrastructure projects that align with its climate goals.
- It seeks approval to issue GO bonds through a public vote or legislative process.
- Investors purchase the bonds, providing upfront capital.
- The city uses this capital to finance projects like green transit or flood defenses.
- Over time, the city repays bondholders with interest using general tax revenues.
Benefits & Challenges for Cities
Benefits:
- Access to large amounts of capital at relatively low cost.
- High investor confidence due to guaranteed repayment.
- Flexibility to fund a broad range of climate mitigation or adaptation projects.
Challenges:
- Requires strong municipal creditworthiness.
- Needs public or political support, which can delay issuance.
- Adds to long-term debt obligations and may face legal or fiscal limits.
Use Cases
City of Gothenburg: SEK 500 Million Green GO Bond to Finance Climate Projects
In 2013, the City of Gothenburg, Sweden, broke new ground by issuing what is widely considered the first municipal green bond in the world. Structured as a general obligation (GO) bond, this SEK 500 million (approximately USD 77 million) issuance was backed by the city’s full faith and credit and leveraged Gothenburg’s strong AA+ (S&P) and Aaa (Moody’s) rating.
Gothenburg’s green GO bond was designated as a use-of-proceeds instrument—funds raised were rigidly allocated to environmental investments, including low-carbon public transport, waste and water treatment facilities, energy efficiency measures, and renewable energy projects such as biogas production and district heating initiative. The financing suite also included innovative climate interventions like net-zero heat exchange for docked passenger ships.
Implementation involved securing institutional investor trust through transparency: projects were pre-screened under a green bond framework reviewed by CICERO, and Gothenburg committed to annual impact reporting, helping investors align with environmental objectives without compromising financial returns.
Challenges included structuring a city-backed instrument that met green standards and attracted mainstream fixed-income capital while ensuring compliance and accountability. The city navigated these by embedding governance structures, using internationally recognized certification, and aligning with global green bond principles.
Achievements were significant: the bond was oversubscribed, reflecting strong demand, and mobilized millions SEK to climate-aligned infrastructure. It enabled Gothenburg to invest in transformative projects such as water treatment upgrades, the GoBiGas biogas facility—reducing annual CO₂ emissions by up to 36,000 tonnes—and sustainable urban transport improvements.
The important insights include the effectiveness of combining the credit strength of municipal backing with a dedicated green framework, the importance of performance transparency, and how GO green bonds can catalyze climate investments while preserving fiscal discipline. Gothenburg’s success provided a template for other cities and regions across Europe considering sustainable, large-scale municipal financing.
When to Use It
- Best suited for planning and construction phases.
- It can be implemented in Energy, transportation, buildings, water management, and coastal protection.
Reference Links
- Investopedia. https://www.investopedia.com/terms/g/generalobligationbond.asp
- UNFCCC: https://unfccc.int/climate-action/momentum-for-change/financing-for-climate-friendly/gothenburg-green-bonds
- Climate Bonds Initiative: https://www.climatebonds.net/news-events/blog/gothenburg-breaks-ground-77m-swedish-green-muni-german-aaa-rentenbank-50m-climate-bond-nyserda-24-3m-resi-ee-climate-bond-green-bond-underwriters-league-boaml-2
- City Gothenburg: https://goteborg.se/wps/portal/enhetssida/investor-relations/green-bonds