{"id":4067,"date":"2020-06-02T11:16:49","date_gmt":"2020-06-02T09:16:49","guid":{"rendered":"https:\/\/reclaimfinance.org\/site\/?page_id=4067"},"modified":"2025-02-13T17:27:19","modified_gmt":"2025-02-13T16:27:19","slug":"green-bonds-watch-out-it-could-be-a-trap","status":"publish","type":"page","link":"https:\/\/reclaimfinance.org\/site\/en\/our-fights\/green-bonds-watch-out-it-could-be-a-trap\/","title":{"rendered":"Green Bonds: Watch out it could be a trap!"},"content":{"rendered":"

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GREEN BONDS: WATCH OUT IT COULD BE A TRAP!<\/h1><\/span>
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In the context of climate crisis, some see sustainable debt market instruments \u2013 green bonds, sustainability bonds, sustainability-linked bonds, transition bonds – as a \u201cgreen\u201d way out.<\/span><\/p>\n

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 \u201cgreen\u201d projects which seem to embody the sought-after sustainable financial product.<\/p>\n

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.<\/p>\n

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\u00b0C trajectory and not active in the most polluting sectors.<\/b><\/p>\n

As for sustainable obligations that are intended to finance companies\u2019 climate transition -sustainability-linked bonds and transition bonds -, they should be based on the issuer\u2019s commitments. Only companies that have adopted detailed absolute decarbonization objectives on all their activities in line with a 1.5\u00b0C 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.<\/b><\/p>\n<\/div>

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1000 shades of green in \u201cgreen\u201d bonds<\/h1><\/span>
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The first green bond was emitted by the European Investment Bank (EIB) in July 2007. Until 2013, and the \u201cGreen Bond Principles<\/u><\/a>\u201d, there was no real intent to clarify or organize green bond emission. However, these relatively loose and voluntary principles, remain largely insufficient to reduce greenwashing and avoid the use of self-named green bonds to finance polluting activities. Even today, there is no legal definition for green bonds. Indeed, without a single definition, these principles remain unable to guarantee the \u00ab\u00a0green\u00a0\u00bb quality of bonds, as some NGOs<\/u><\/a> and financial actors have often pointed out.<\/p>\n

Green bonds have financed controversial projects, such as Hong Kong’s airport<\/u><\/a> and Engie\u2019s dam (formerly GDF Suez), or massively polluting ones, like coal in China<\/u><\/a>. According to the Climate Bond Initiative<\/u><\/a>, that aims at ensuring that projects financed through green bonds are aligned with a 2\u00b0C trajectory, from January to the end of May 2020: 66.5 billion of emitted bonds were aligned with the Paris Agreement and 90.1 were not.<\/p>\n

Since 2018, the European Union is working on \u201cGreen Bond Standard<\/u><\/a>\u201d to reinforce the transparency, quality and credibility of green bonds. Despite the fact that the EU Commission is considering a legislative side for this work, these principles, that suggest the alignment of investments financed through green bonds on the new green taxonomy<\/u><\/a>, remain fully voluntary.<\/p>\n<\/div>

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Green bonds: a marketing tool?<\/h1><\/span>
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