Green bond market in danger of greenwash

The global green bond market is set to grow to €1tr by the end of 2021 and €2tr by the end of 2023, according to NN Investment Partners (NN). However, the credentials of green bonds can be misleading with around 15 per cent of issues are from companies involved in controversial practices that contravene environmental standards.

The drive to increase the ‘greenness’ of portfolios will also have a boost when the EU’s Green Bond Standard is implemented, further improving transparency and reporting in the sustainable fixed income market. The EU also plans to set aside more than 30 per cent of its €750bn COVID-19 economic rescue package for projects that will be financed by green debt.

Yet as the criteria used to assess green projects or activities is becoming better defined, NN warns that only around 85 per cent of green bonds deserve the label – the remainder are issued by companies that may use the proceeds for environment-friendly projects but which are involved in activities that incur negative impacts elsewhere. For example, a railway company could finance low-carbon transportation through green bonds while still being heavily involved in fossil fuel freight.

Bram Bos, lead portfolio manager green bonds, commented: “Investors must do their homework and not blindly trust the green label. The projects financed by green bonds should deliver clear environmental benefits that can be assessed and quantified wherever possible.”

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