NEW YORK: Almost all green bonds issued in the US fail to drive real action to tackle climate change, undermining the merits of a global market that’s grown to more than US$3 trillion, according to a study.

An analysis of the first green bonds sold by corporate and municipal issuers between 2013 to 2022 found that about 2% of proceeds were used to fund projects that are genuinely unique or don’t replicate existing work, Pauline Lam and Jeffrey Wurgler said in a working paper published by the National Bureau of Economic Research (NBER).

Roughly 30% of proceeds from corporate green bonds and 45% in the case of municipal bonds were used to refinance ordinary debt, while in many other instances funds were directed to expanding existing projects or to similar new developments.

Investors also typically don’t differentiate between bonds based on their “additionality,” a term used to measure activities that generate a positive climate impact that wouldn’t have otherwise occurred, according to the NBER study.

“A cynical interpretation of the results is that the green bond market is largely a financing sideshow,” Lam and Wurgler, both of New York University’s Stern School of Business, said.

“The empirical conclusion is that the green bond label itself provides little assurance that the funds are being directed toward a project whose green traits are novel for the issuer.”

With the issuance of sustainable debt continuing to increase, “we hope our findings will encourage greater scrutiny of green bond proceeds, and more precise notions of additionality, so that the market might achieve its real promise,” they said. 

 - Bloomberg