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What is the point of green bonds?

A new study finds little evidence that they directly cut carbon or lower costs.


Green bonds are the stars of climate finance. These instruments, which channel funds raised towards environmentally friendly projects, raised $271bn in 2019, according to Bloombergnef, a consultancy. That is only about 4% of total bond issuance worldwide, but it easily makes green bonds the most popular form of eco-friendly debt. Covid-19 has only slightly slowed the rise. On September 2nd Germany issued green paper for the first time. The European Commission is mulling using them to fund just under a third of its €750bn ($888bn) stimulus package.


Yet a new study by the Bank for International Settlements, a club of central banks, raises questions about the purpose of green bonds. Researchers looked at 200-odd large firms that issued them in 2015-18. They found that firms that issue the most tend to be cleaner in the first place—ie, they produce the least carbon for a given amount of revenue. Over 70% of issuers have a carbon intensity equivalent to a consumer-staples firm, such as Procter & Gamble, or lower. Large polluters rarely issue such bonds for fear of being accused of greenwashing, and because the bonds would be excluded from green funds.


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