Green bonds have emerged as one of the simplest solutions for raising money. To some, this financing vehicle is almost a panacea: Issue green bonds and the problem will be solved.
But the link between issuance and impact is not automatic. How green, really, is the project financed by a green bond? Take the example of France, which issued 7 billion euros in bonds labeled "green" to finance items related to the achievement of the Paris Agreement goals. These projects have been and can be financed by regular Treasury debt, but by bundling those activities around a green bond issue, the debt can be called the "the largest sovereign green bond" and boast of leadership.

Closing the gaps

The single most effective tool to ensure alignment of intentions with having impact is the social responsibility of the issuer itself.

If nations wanted to regulate all the phases so that there would be guarantees of effectiveness and impact, the regulations would have to be so detailed as to be unyielding, very expensive for all and all flexibility would be lost. But It doesn't mean that the present ones cannot be tightened and still be manageable.

The GBPs should be tightened to avoid generalities, verifications should include assessment of potential impacts of the projects and activities must be compulsory not optional, and the monitoring must go beyond stating that the processes were followed. 

Additionally, the principle issuers (ICMA, European Union and others) and the green finance industry should seek to promote the expertise and involvement of civil society organizations in the monitoring of green bond prospectus issues and projects.

This is, with some variations, what the oldest (first issue in 2007 for $800 million) and largest non-sovereign issuer of green bonds ($18 billion in 10 years), the European Investment Bank (EIB), is doing. It would no doubt increase the costs of the issues, but as they usually are in the hundreds of millions of dollars, the increase would be small in relative terms and the gain in credibility high. 

Credibility and impact, not just quantity

All of this is not to imply that green bonds aren't an effective and legitimate tool to promote green development. But this highlights the potential space in middle of issuance and impact — the potential for old forms of financing to be labeled "green" and for projects to slip through that may not be as green as alleged. The GBPs, while a big step ahead, could increase the potential for greenwashing and for ineffectiveness.

Source:Green Biz

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Picture credit to:Medena Rosa