Green bonds: a climate solution with some holes

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Green bonds may be a way to finance climate change solutions, but some may not be as ‘green’ as they look.

Director of the Sauder School of Business Prediction Markets at UBC, Dr. Werner Antweiler cautioned in a phone interview that green bonds now offered by corporations “may, in some cases, amount to greenwashing.”

“Originally, [the green bond market] was very different from what it has morphed into today,” he said.

Green bonds are understood as products issued to raise money for sustainable projects. The green bond market has seen a growth of offerings in recent years, with issuers such as the World Bank to governments and corporations entering the market. Last year, Apple and Starbucks made headlines by issuing $1.5 billion and $500 million respectively in green bonds. 

Some organisations assert green bonds are key to financing the infrastructure needed to prevent dangerous climate change. The International Energy Association estimates that the energy sector requires $53 trillion in green bonds by 2035. According to a recent report, $694 billion of a subset of green bonds, ‘climate-aligned’ bonds, were outstanding in 2016.

Dr. Antweiler cautioned that the green bond market needs more third-party certification and uniform standards across the industry before buyers can be certain their money will have a sustainable impact. Standards for green bonds such as the Green Bonds Principles exist, he noted, but adhering to the standards is voluntary. There are no mandatory requirements to measure the impacts of projects funded by green bonds, said Dr. Antweiler.

“Once you have people . . . willing to pay a premium for something they consider green,” he said, “you get a lot of imitators out there who say ‘hey, wait a minute, I’ll just claim to be green.’”

He also noted that corporations may issue green bonds to raise money at lower cost to finance projects they would have undertaken regardless.

Until the industry develops a mandatory certification process, Dr. Antweiler urges buyers to remain cautious. Another alternative for a socially minded small investor, he noted, is to invest in indices that exclude certain sectors.

Other tips for making an impact with your money? “Do green things. Buy green things,” said Dr. Antweiler. “Instead of buying a fuel-inefficient car . . . buy a hybrid car. The real [changes] are decided on the demand side, and not on the financing side.”

By Jenny Tan, 3 February 2017