On March the 6th, the Guildhall in London hosted Climate Bond Initiative’s Annual Climate Bond Conference. Over 600 participants representing green and climate bond issuers, investors, and underwriters discussed the current state and future of climate bonds. I participated in the event, among others as a panelist in a dialogue on defining green, which is investor shorthand for determining to what extent investments have clear and real-life environmental benefits that combat climate change. What could ‘defining green’ do for us?

Photo: Olaf Brugman, all rights reserved

Defining green regards the green standards and criteria for capital market instruments. Guidelines and standards for green bonds and similar instruments such as climate bonds, social bonds, sustainability bonds, etc provide support in determining the degree of greenness. For example, the Climate Bond Initiative provides science-based and expert-validated guidance for green bonds and is able to certify bonds that comply with the guidance. And the Green Bond Principles provide a framework that lets bond issuers and investors to decide whether bonds are sufficiently green using transparency and assurance tools for green bonds. And to an increasing extent, national initiatives promote their own frameworks for green bonds, often aligned to the frameworks of Climate Bond Initiative or the Green Bond Principles.

What are the challenges in making recognising green finance and green bonds in the market? And what is the road ahead of us in terms of finance that works to stimulate positive environmental and social impacts? From the public debate in the Guildhall, it could be inferred that there is a need among investors for seeing more green bonds issued. And also, that there are more and more businesses, financial institutions and public institutions issuing green bonds. An other aspect of the deliberations in the Guildhall was how green finance could be scaled up. The conversation seemed to focus on creating a volume-wise increase of climate and green bonds issuance, while the rationale of green finance and whether we are on track in creating real life impacts was hardly raised in specific terms. The ‘how’ of adapting green and climate bond instruments to deliver more demonstrated positive environmental impacts was debated, but did not seem to lead to clear and generally underwritten conclusions.

It is up to the current green and climate bond communities to lead the dialogue on creating material environmental and social impacts through green and social capital market instruments. This would require, first, dialogue within these organisations and also a dialogue bringing together the various platforms for green finance. The dialogue should ideally be aimed at, first, making the actual impacts of green investments much more visible then is currently the case. Do the investments contribute to lower carbon economies? To what extent do they decrease pollution, or to what extent do they contribute to reduction of deforestation and to the protection of critical ecosystem functions?

The current green bond frameworks still find it difficult to address these questions, which may lead to inertia and self-indulgence. However, even if it is great to finance green, without further reaching ambitions and objectives, there is no way of knowing whether our total green-labelled investments have sufficient impact, and whether we are on track in curbing climate change. Green finance principles and guidelines tell us in what direction we should embark on a journey to reach internationally widely acknowledged environmental ambitions to ensure healthy societies on a health planet. And they tell us the right points of embarkation (e.g., working from Green Bond Principles or from Climate Bond Initiative’s standards). However, without further dialogue on ambitions and directions, we are clueless on our final destination and on whether we will get there on time to avoid disastrous effects of climate change on our economies, ecologies, and societies.

Second, green bond frameworks should explore the above-mentioned challenges in dialogues about their own functioning and how it can improve both their mechanisms, impacts and effectiveness. This regards self-referential dialogue about what it is the platforms want to achieve, about what they should achieve as a minimum, and about the actual progress of the achievements. The dialogue should be informed by validated models of the volumes, workings and impacts of our green investments guided by externally defined objectives regarding planetary and social health. They should not be guided by the political interests of the parties represented in the various green or climate bond interests, since that would model solutions in terms of the Institutions and the Societies We Have, instead of the Institutions and the Societies We Need. This second-order type of dialogue needs navigation tools that give us the information to steer our institutions, guidance, principles, standards towards planetary and social health objectives. To know how much we have progressed in our journey, exact location and our estimated time of arrival. These navigation tools are currently not available or cannot accessed by the current green, social and climate bond dialogue platforms.

However, all of the above is not to paint a dark picture. The good news is that there are broadly accepted environmental and social objectives available (e.g. Sustainable Development Goals); there is science-based information available about our national and global progress towards taking control of our carbon cycles; there are methods and technologies available to measure and guide our actions (e.g. science-based goals, corporate climate disclosure methods). In other words, the navigation tools and management information is available, we just need to connect the dots and wire them differently to make green finance standards communities more effective and transformational tools. We need to build our navigation tools and our collective cockpit. We need more intensive dialogue for that, not only about the technicalities of green finance standards and guidelines, but also about how we use them and about what objectives to reach.

The author is the head of sustainability of Rabobank’s Debt Capital Markets and member of the Executive Committee of the Green Bond Principles.
Views in this article are his own, and do not reflect the positions of the aforementioned institutions.

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