BIS Sees No Proof Green Bonds Improved Firms’ Carbon Footprints
BIS Sees No Proof Green Bonds Improved Firms’ Carbon Footprints
(Bloomberg) --
Companies that issue green debt aren’t necessarily reducing their carbon emissions, underscoring the need for firms to have an environmental rating, according to a report from the Bank for International Settlements.
The median change in carbon intensity -- the ratio of carbon emissions to revenue -- of green bond issuers has been minimal over time, according to the global forum for central banks. That’s because green bonds are issued to finance specific projects without impacting a firm’s environmental credentials as a whole.
“Overall, there is no strong evidence that green bond issuance is associated with any reduction in carbon intensities over time at the firm level,” authors including senior economist Torsten Ehlers wrote in a report released on Monday. “Because green labels apply to standalone projects rather than to the firm’s overall activities, projects promising carbon reductions could be offset by carbon increases of the same firm elsewhere.”
Debuting more than a decade ago, the green bond market has exploded to about $1 trillion, according to BloombergNEF data, as investors demand more sustainable investment options. With that growth has come worries about greenwashing -- misleading claims about environmental responsibility.
“Naive investors might expect firms with very high carbon intensities to be disqualified as issuers of green bonds,” the researchers said.
Concern about standards in the green bond market were raised when Spanish oil company Repsol SA in 2017 became the first major refiner to sell the securities. Royal Schiphol Group NV in Amsterdam set a precedent for other airports this month when it sold green debt.
JPMorgan Chase & Co., the biggest U.S. bank by assets, issued bonds to finance environmentally-friendly projects for the first time this month, while Saudi Electricity Co. sold the first green bond from the world’s largest oil-exporting nation, the latest milestone in the expansion of environment-friendly debt instruments.
The vast majority of green bonds are defined by “use of proceeds,” meaning the company must spend the money on environmental projects although there is no obligation to achieve group-wide compliance with environmental criteria, said Richard O’Callaghan, partner at Linklaters LLP in London.
“Any step on an environmental journey has to start somewhere,” he said.
The BIS says a rating system that ranks a company’s so-called greenness would help investors who don’t have the resources to do their own due diligence. It would also provide firms with an incentive to lower their carbon intensity.
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