Green bonds, until very recently a niche product, are gaining in prominence as the market grows above $500bn (€369bn).

But this currently masks a lack of diversity, as bonds are largely issued by state-backed firms or state-backed investment funds.

As the ‘Bonds and Climate Change’ report by the Climate Bonds Initiative has found, private-sector issuance of climate-related bonds has not matched state-guaranteed issuance since 2005 – although activity in 2014 came close to that level.

An initiative to establish clear guidelines on what can be regarded as a property-backed climate bond could soon diversify the market further, allowing investors wider access to asset-backed issuances.

The proposed standards would cover investment in commercial and residential property and hope to bring about the scale of investment “needed to drive significant improvements in the building environment”, according to the Climate Bonds Green Property Working Group.

The initiative, which would limit accredited climate bond issuance to the top 15% of any regional market, based on a building’s ability cut emissions, has backing from a number of large institutions.

Sander Paul van Tongeren, executive director of the Global Real Estate Sustainability Benchmark and head of sustainability real estate and infrastructure at Dutch manager APG, joined the initiative’s technical working group this summer.

At the moment, the market is the “dull green market – just how pension funds and insurance funds like it”, according to Sean Kidney, chief executive of the Climate Bond Initiative.

Activity in the shape of high-profile, state-backed initiatives will only pique the interest of the pension sector in the market, with the UK Green Investment Bank (GIB) seeking capital to launch a £1bn (€1.3bn) wind-farm fund, the first step towards the launch of a standalone fund-management entity.

Similarly, Germany’s Kreditanstalt für Wiederaufbau saw significant interest in the debt funding it would put towards renewable energy projects. The development bank would, like the GIB, demonstrate the carbon reduction achieved by the investment, with its reputation in the market resulting in €1.5bn of debt being issued, rather than the initially announced €1bn.

Despite the investable universe for bonds measuring nearly $78bn (€68bn), the market is still too shallow to offer indices.

Bridget Boulle, co-author of the aforementioned Climate Bond report, says that despite such high-profile issuances, the main problem for investors is discovering the product.

There is still work to do on discovering and identifying the product, and then packaging it in a way that excites investors – especially institutions. Boulle thinks indexes will be the main way of discovery for now, rather than being a benchmark for investors to use.

“I’m not sure there is enough large and liquid products around to be a really viable investment, but, when we are there, it will be even easier for institutions,” she said. “That’s the next step in a few years’ time.”

For now, investors will have to contend with acquiring stakes in the expansion of the Chinese railway, as the People’s Republic is currently the largest single issuer of bonds – deemed low carbon – through China Railway Corporation.

But the growing importance of climate finance, the need to upgrade existing housing assets as firmer regulations on sustainability take hold, and the European Union’s emphasis on sustainability of project bond initiatives should offer investors further opportunities in future.