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The future of green bonds
The modern world has long been thinking about investing in the environment.
Such investing should not only bring the revival of nature but also give financial benefits to investors.
It is clear that the infrastructure of the money and financial market was not ready for the introduction of «green investing».
That is why national governments, international financial institutions, central banks, and exchanges have focused on creating new financial instruments.
Actually, such steps became a mistake. I will explain this with the example of green bonds.
The International Capital Market Association has developed standards for the quality of the implementation of green bonds.
The Association included such standards:
- coordination of the use of income on green bonds;
- the content of the framework of green bonds must be prepared by the issuer;
- it is necessary to introduce reporting on the distribution and impact;
- requirements for external verification of green bonds.
In addition, the Association distributes environmental trends for those directions:
- ecological direction;
- social direction;
- the direction of «sustainable development».
Similar classification and standardization of green bonds can be traced in the projects and plans of the European Union in the introduction of green bonds.
However, active preparation for the full launch on the money market of green bonds does not answer the following questions:
- how will green bonds work in the absence of projects?
- how to cover risks for issuers during crises (environmental, economic, pandemic crises);
- by what method to assess environmental benefits?
- what are the costs of the external verification process?
- unknown types of property and assets for which financing is planned.
The answer to the question of why green bonds will not be fully operational in the future comes down to the fact that there is no market for infrastructure projects in which green bonds can be involved.
At present, it is not even possible to select a project and test its «usefulness» in assessing its environmental impact.
For example, researcher Ming Chun Tang claims that forests and agriculture account for 30% of success in tackling climate change, but they receive less funding only 3% of total government funding.
For Asian countries, wind, solar, and hydrogen energy projects are an advantage.
That is, we can conclude that the project diversification will not contribute to the formation of a market in which green bonds will operate.
At the international level, there are environmental programs from organizations that inhibit the development of green accounting.
In this context, it is worth mentioning the program The Born Challenge. The program’s goal includes the abandonment of land extraction until their involvement in the trees to 350 million by 2030. This initiative exists through contributions, grants, and charitable assistance.
That is, financial and target disparities do not contribute to the development of green bond circulation.
Without the creation of a market for infrastructure projects, the development of green bonds will be hampered for many years and will remain a top priority for national governments.