Can investors differentiate among green bonds?
The growth of the green bond market led investors to look for higher levels of assurance and for reinforcing the comparability of green bond projects issued by a diverse pool of issuers. Deschryver, and de Mariz, in this paper, interview experts, including investors, issuers, and intermediaries, such as banks and consulting firms to gauge investors’ concerns over the issuance of green bonds. Their pointed out the following issues:
- Comparability remains a challenge.
- There is a deficit of sufficient research and data to inform investment decisions.
- There is a lack of a consistent certification system, in comparison with
standardized credit ratings in the vanilla bond market; - There is the concern of greenwashing where some companies may not be eligible for green bonds, while some of their projects could be.
What Future for the Green Bond Market? How Can Policymakers, Companies, and Investors Unlock the Potential of the Green Bond Market?
Authors: Pauline Deschryver, Frederic de Mariz
From: Columbia University
What does the green label really mean?
In this paper Ehlers et al. use annual data from S&P Trucost for information on the carbon footprint of publicly listed firms as well as data on green bonds provided by Bloomberg, Climate Bonds Initiative, Dealogic, and the Environmental Finance Bond Database in order to assess the impact of green bond issuance on carbon emissions. They use a measure of firm “greeness” defined as the ratio of carbon emissions to revenue. They find:
- Overall, there is no strong evidence that green bond issuance is associated with any reduction in carbon intensities over time at the firm level;
- In some sectors with typically higher carbon intensities, such as industrials and real estate, green bond issuers appear to have achieved lower carbon emissions than firms that did not issue green bonds;
- In the important utilities sector, which includes energy production and distribution, green bond issuers have, on average, achieved smaller reductions in carbon intensity.
Scope 1 emissions cover emissions from owned or controlled resources of a firm. Scope 2 emissions are indirect emissions from the generation of purchased energy (eg electricity). Scope 3 emissions include all other indirect emissions that occur in a firm’s value chain (eg input products, employee travel, distribution etc). The broadest scope of a firm’s emissions is then the sum of Scopes 1, 2 and 3.
Green bonds and carbon emissions: exploring the case for a rating system at the firm level
Authors: Torsten Ehlers, Benoît Mojon, Frank Packer
From: BIS
