Demand for green bonds is growing but supply is yet to catch up.

A new report from analysts at S&P Global Ratings explores how the market is changing and supporting environmental improvement in the real estate sector.

Green bonds are conventional bonds whose proceeds must be used for investment in sustainable projects.

According to the report, demand for green bonds is increasing but Real Estate Investment Trusts (REITs) are currently issuing them in limited numbers due to the extra costs associated with them. This lack of supply could potentially limit expansion of the market if it continues.

It states further growth should allow for greater standardisation which would give commercial real estate companies more flexibility and control, encouraging them to get more heavily involved.

The report adds tenants are “increasingly demanding” in terms of the environmental performance of the buildings they rent because properties with green credentials allow them to save money.

This results in real estate firms getting more green building certifications to attract investors, who generally see these certifications as reliable and trustworthy.