Green Bonds: A Legal and Economic Analysis

Abstract

Green bonds are bonds issued by public or private institutions to finance projects with a positive impact on the environment. This article focuses on green bonds issued by private, profit-oriented corporations. After a description of green bonds’ main features and an account of the main drivers behind the growth of the green bond market, the article discusses green bonds’ role in promoting corporate environmental sustainability. It highlights green bonds’ capacity to improve the credibility of firms’ environmental pledges, their role in enhancing firms’ environmental transparency and their ability to increase the number of green projects being financed. The article then investigates whether green bonds should be regulated. It discusses the major concerns that may support regulatory intervention, namely issuer opportunism and uncertainty regarding what can be considered a green project, showing that they do not provide any strong argument in favour of regulation. In light of this outcome, the article provides an account and an assessment of EU policymakers’ recent regulatory initiatives in the area.

Keywords: green bonds, green finance, ESG, sustainability, European green bond standard

JEL Classification: K22, G1, G15