But for the $1 trillion of issuance to emerge, the report notes that there has to be "many positive developments" including increased standardisation, development of second and third party assurance, political support and overall further maturation and diversification of the Green Bond market.

Investors are snapping up bonds to finance the global expansion of clean energy, promoted by governments from the US to China to tackle climate change. The debt, issued by development banks or by project sponsors themselves, offer investors an alternative to volatile equities and BofA Merrill Lynch said favourable business and political tailwinds would continue to propel the growth of the green bonds market.

A big year for Green Bonds

The latest statistic comes off the back of a report by the Climate Bonds Initiative (CBI) released in January, which said 2014 was a record breaking year for Green Bonds markets around the globe.

CBI reported that by year-end there had been $36.6 billion of green bonds issued by 73 different issuers – more than triple the 2013 issuance.

Additionally, Deutsche Bank said last month it was working to boost its investment in green bonds to 1 billion Euros (AU$1.38 billion), joining competitors such as Citigroup and Barclays in tapping profit from the quickly growing market.

The Frankfurt-based institution has invested €200 million in green bonds and intends to expand that starting with the purchase of a 10-year issue from the World Bank.

“The Green Bond market has matured during 2014, and the size and number of offerings has substantially increased making green securities viable and prudent liquidity buffer investments," Deutsche Banks group treasurer Alexander von zur Muehlen said.

In Australia, key standout performer was the National Australia Bank (NAB), which raised $300 million in December last year after initially targeting only half of that amount.

According to NAB, the money will go towards a portfolio of renewable energy assets, including wind and solar facilities in Victoria, SA, Tasmania, WA, NSW and the ACT.

NAB Group executive for product & markets Antony Cahill said: “This provides investors the opportunity to invest in a bond with the same features of any senior, unsecured NAB bond – but with the additional benefit of being dedicated to financing climate change solutions."

14 of the facilities are operational and three are currently under construction. All are project finance facilities originated and serviced by NAB.

As of mid-March 2015, borrowers in 19 countries in 23 currencies have issued about 300 issues of green bonds and in this year alone, about US$4.7 billion has been raised with a US$800 million eight-year offering by Terraform, Power Operating LLC being the largest.

According to the CBI, green corporate “earmarked” bonds have helped create depth in the green market.

Not only have the corporates brought scale, accounting for $12 billion issuance, they have also offered a range of currencies - both great for liquidity in the market. The largest corporate deal of the year was GDF Suez’s €3.4 billion green bond - split into a €1.2 billion and €1.3 billion tranches - with proceeds going towards renewable energy and energy efficiency projects.

"As the corporate green bond market matured, we also saw a move down the ratings with NRG Yield (rated Bb1 by Moodys) and Abengoa Greenfield SA (rated B by S&P) bringing high yield green bonds to the market in Q3," CBI's report said.

More than one shade of Green Bond

In a recent visit to Sydney, Sean Kidney, CBI's CEO noted that the increasing popularity of Green Bonds is now leading to the issue of increasing regulation and standardisation of terms. His concern is that "very pale green" bonds might be pushed as "dark green" bonds.

"Part of the friction stems from how the funds raised are applied," Kidney told Banking Day.

It comes down to what is "demonstrably green". Clearly, funding renewable energy programs or the construction of brand-new energy efficient six-star buildings or railways that take thousands of trucks and cars off the road are more desirable than a cheap retrofit that just scrapes in under self-interested building standards.

Proponents are pushing for some comfort that the money raised is going to be applied in an acceptable manner.

"There are some rules emerging in the market, but at the same time there needs to be a way to grow investor demand for green assets," Kidney added.

"Our argument is that the definition should not be about opinion or based on standards set up by industry bodies. And I'm not going to say that anyone in this market is not well intentioned."

Nevertheless, the assets being funded need to be verified by reputable organisations, particularly for projects or buildings that are aimed at mitigating climate change.

Kidney also said bankers were not the right people to decide whether a bond was "green" or not.

"They should just get out of the way and remember that this is a public interest issue, addressing environmental changes, and needs complete transparency so the public can scrutinise every green bond.”

Kidney suggested that there needed to be a two-tier system of green bonds: one for regular issuers and another for those that come to the market rarely (and, when they do, might be tempted to game the system).

Green bonds have credit risk and coupon on a par with any other "plain vanilla" corporate bonds and the environmental aspects are a bonus. One way the government could encourage the market, Kidney suggested to Banking Day, was to offer tax credits for genuine "green" bonds, as happened in the US and, he said, was about to happen in China.