Environmental impacts of green bonds in cross-countries analysis: a moderating effect of institutional quality (2024)

FAQs

How do green bonds affect the environment? ›

Green bonds are debt instruments that are issued to finance projects that have a positive environmental impact. They are designed to encourage investments in renewable energy, energy efficiency, sustainable agriculture and other projects that promote sustainability.

However, there remain significant challenges and risks to the continued use and growth of the green bond market. These include inadequate green contractual protection for investors, the quality of reporting metrics and transparency, issuer confusion and fatigue, greenwashing, and pricing.

The European banks UBS and Santander have raised hundreds of millions of pounds of “green” bonds that were partly intended for farmers and ranchers accused of environmental and human rights abuses in Brazil, an Unearthed and O Joio e O Trigo investigation has found.

Green bond issuance can raise managers' internal attention on corporate environmental issues, thus improving the level of enterprises undertaking environmental responsibility. External supervision is another crucial factor influencing enterprises to engage in environmental responsibility activities.

The findings suggest that green bonds can help firms finance carbon reductions, but they also indicate that a considerable fraction of green bond financing does not lead to measurable benefits for the environment.

A municipality issues the Bonds and sells them to private investors to finance environmental capital projects. The municipal issuer then uses this funding for green infrastructure solutions. The entity is required to pay interest on the bonds and to repay the principal amount of the bonds on scheduled payment dates.

China and Germany remained the top two issuing countries of green bonds, with issuance remained unchanged at US$53 billion and US$37 billion respectively. The United States was the next largest issuing country of the bond type, with issuers from the country launching US$25 billion in 1H 2023, 19% up year on year.

The cons of green lending

The absence of universally accepted standards and definitions of what comprises a 'green' project is one of the greatest obstacles facing green lending. This can lead to “greenwashing,” where initiatives are presented as environmentally friendly despite their minimal or negative impact.

Green investment does come with environmental, financial, regulatory, and political risks, though these can be managed to increase investors' long-term success.

The Green Bond Principles (GBP) seek to support issuers in financing environmentally sound and sustainable projects that foster a net-zero emissions economy and protect the environment.

How safe are green bonds? ›

Additionally, they demonstrate a strong safe haven property with high-emission sectors for the entire study period and with all sectors except financials during the COVID-19 period. This hedging and safe haven benefit of green bonds is agnostic of the environmental disclosure score of a firm.

In 2020, there were $51 billion in green bonds issued in the United States. Globally, the green bond market has increased by 60% since 2015, reaching $1 trillion in 2020.

Findings. The overall results confirm the positive environmental impacts of green bonds in reducing carbon dioxide and greenhouse gas emissions, enhancing renewable energy consumption rate and accelerating the progress towards sustainable development goals (SDGs).

By reducing energy consumption and using products made from recycled materials, you can reduce the impact of resource extraction on the environment. greater biodiversity – recycling and reducing waste can help protect biodiversity by reducing the amount of waste that ends up in landfills.

Green buildings help reduce negative impacts on the natural environment by using less water, energy, and other natural resources; employing renewable energy sources and eco-friendly materials; and reducing emissions and other waste.

Green practices or initiatives are things that businesses do to reduce their environmental impact, like reducing energy consumption, using eco-friendly materials, promoting sustainable transport, and reducing waste.

Green consumer behavior

"purchase and use of products with lower environmental impacts, such as biodegradable products, recycled or reduced packaging, and low energy usage"; use of organic products, made with processes that provide energy savings, then by the action of recycling.