In the context of climate crisis, some see sustainable debt market instruments – green bonds, sustainability bonds, sustainability-linked bonds, transition bonds – as a “green” way out.
The most common and well-consolidated among these sustainable debt market labels are green bonds. Green bonds consist of debt equities issued by firms or public entities and aim at financing so-called “green” projects which seem to embody the sought-after sustainable financial product.
However, with little supervision, green bonds cover a multitude of realities, including the financing of non-green projects and the emission of bonds by polluting companies. Furthermore, a closer examination of their financial characteristics reveals that they are not different from standard bonds and simply serve to make greenwashing easier. Despite these many flaws, green bonds are expected to keep growing, and the new generation of sustainable obligations is repeating the same mistakes.
To make green and sustainable bonds real decarbonization tools, it is necessary to ensure that the companies issuing them are committed to a 1.5°C trajectory and not active in the most polluting sectors.
As for sustainable obligations that are intended to finance companies’ climate transition -sustainability-linked bonds and transition bonds -, they should be based on the issuer’s commitments. Only companies that have adopted detailed absolute decarbonization objectives on all their activities in line with a 1.5°C trajectory should benefit from them. More specifically for fossil fuel companies, credible objectives must go hand in hand with a commitment to immediately stop hydrocarbon exploration and new oil and gas projects.