BlueSky Thinking Summary

The surge in green bonds has now become a $1.5 trillion market, promising to fund objectives like renewable energy and pollution reduction.

But new research by Aaron Yoon and Sanjai Bhagat questions if these bonds are actually improving stock prices or engendering real environmental benefit.

The researchers analyzed 1,560 green bond announcements between 2013 and 2022 but did not see any significant increases in stock prices after the announcement and further didn't find any improvement in emissions or ESG scores.

More frequently than not, nineteen out of the twenty companies issuing green bonds had prior profitability issues, suggesting that this is a strategy to complement capital rather than actual commitment to environmental issues.

This leads to the question of greenwashing, where businesses that improve their environmental credentials by making claims they cannot back up do the same.

In making use of funds from green bonds, Yoon stresses that transparency and accountability are necessary and wants businesses to have clearer outcomes that can be communicated to investors.

Given that scrutiny is on the increase, how well green bonds can actually trigger major environmental impact remains unclear—indicative of the very early stage of verification methodologies for corporate environmental claims.