Background:  Entering a new geological epoch where humans are the main force shaping of the biosphere, have forced an immense stress onto society and the Planet with regards to sustainability. The United Nations and the Paris Agreement have strongly emphasized the urgent need to allocate finance onto urgently mitigating climate change. The financial sector has confronted this challenge through providing sources of finance to meet sustainability requirements. Thus, green bonds emerge as an instrument aimed to cooperate in the transition towards advancing sustainability. 

Purpose: Given the ambiguity of green bonds impacts on environmental sustainability, this study explores the contributions of green bonds towards a fruitful transition towards sustainability. Being crucial stakeholders in the transition towards sustainability, these contributions have been examined in the context of Swedish municipalities 

Method: To examine the contributions of green bonds in the given context, an exploratory research was conducted using a multiple case study design. Five municipalities, two investors and a municipal funding agency were interviewed though semi-structured interviews. A thematic analysis was performed on the empirical data. First, a within-in case analysis was conducted following a cross-case analysis allowing to find emergent and common patterns.

Conclusion: The green financial instrument does not appear to be a main driver of sustainability, nor does it have a significant influence on the environmental impact of the municipalities’ investment projects. Nevertheless, the study finds that green bonds contribute to advancing sustainability in municipalities through three main areas: Financial impetus, organizational effects and structure and requirements. Thus, the municipalities studied provide evidence that green bonds grant a small reduction in the cost of capital, produce organizational effects like increasing collaboration between the environmental and financial department and enhances transparency through its structure and requirements.