Second, green bonds must genuinely be intended for (re)financing sustainable investments. There is always a chance that funding will be shuffled about on the balance sheet, so that the relatively cheap green funding might still be used for brown activities. An oil company issuing a green bond is just not right, even though the proceeds will used to fund sustainable activities. First, the company or institution that issues the green bond must itself also be sustainable. There are several criteria that can clarify that definition and bring it more into focus. "I would still rather live in a green bubble than slip on a brown banana skin" Green bubbleĪs these examples show, the definition of a green bond is not always clear-cut. However, by labelling bonds as green, a government can add investors with green mandates to its funding pool and thus reduce costs. In Belgium the objective appears to be to take some of the pressure off the government budget, as investments in infrastructure are part of a govenment's normal expenditure. The money raised with the sukuk may not be used for fossil fuels but could possibly be spent on deforestation. Indonesia is the largest coal exporter in the world and has also cut down large parts of its primeval forests to make room for the monoculture of palm oil plantations. These issues mainly concern the definition and scope of sustainable investments: the Polish economy relies on coal for 80% of its energy requirement and is therefore far from sustainable. These three examples also illustrate the issues that these types of instruments entail. This 'sukuk' is structured so that it complies with the Islamic prohibition to pay interest. Indonesia also issued its first green bond last month. Earlier this year, Belgium issued its first green bond, primarily to fund investments in infrastructure, such as rail roads. In addition to companies and investors focusing on sustainable power, several governments have also discovered this green instrument as a means of raising capital for sustainable purposes. That is a lot of money, but still represents only around 1% of the total market. According to CBI, the Dutch centre for the promotion of imports from developing countries, this amount will grow by 60% to USD 250 billion in the current year. Last year a record amount of USD 157 billion in green bonds was issued. Yet I would still rather have a green bubble than slip on a brown banana skin, in other words: invest in brown stocks or bonds that may in the long run prove worthless. These are two effects that could create a bubble and thus make sustainable investments slightly less sustainable. non-sustainable investment instruments being labelled as green, because that allows funding to be obtained more cheaply. This could also result in increased greenwashing, i.e. This market has in fact grown so fast that there is a chance of a so-called green bubble developing: excessive demand for green bonds coupled with too little supply.
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