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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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How Green Bonds Are Blurring Environmental Commitments

  • Danish transport company Moeller-Maersk recently issued a green bond, sparking debates on the true nature of such bonds.
  • While organizations like the International Capital Markets Association define green bonds, ambiguity remains, allowing potential greenwashing.
  • Though green bonds can genuinely fund eco-transition, the lack of standardized verification raises concerns about their true impact.

A week ago, Danish transport giant Moeller-Maersk issued its first green bond. The debt, worth $750 million, will be used to “help finance or refinance green assets.”

With that bond, Maersk joined a growing army of businesses issuing debt to finance various transition-related activities as governments tighten the emission noose around them through new laws and financial reporting regulations. 

Yet green debt, like carbon offsets, has become the object of criticism and doubts about the green credentials of the issuers. And with good reason.

Per a Bloomberg report, a source close to Maersk said the company would use its green loan for assets including “fixed assets, capital and operating expenses, as well as acquisitions of firms that derive at least 90% of their revenue from activities such as clean transportation and green buildings.”

Now, while clean transportation and green buildings fit perfectly with the green part of the debt, one might argue that capital and operating expenses are not really green activities. This is the big problem of green bonds, and now it is becoming an increasingly big problem for the banks arranging these loans.

The first green bond was issued in 2007 by the European Investment Bank—the lending division of the European Union. Ten years later, Repsol made history by becoming the first oil company to tap the green bond market. It raised the money to reduce the carbon intensity of its refineries. Since then, there’s been a flood of green bonds.

Naturally, with so much debt being issued, the danger of greenwashing increased proportionately, prompting regulators to come up with a definition for what a green bond was. The International Capital Markets Association has a good one:

“Green bonds enable capital-raising and investment for new and existing projects with environmental benefits. The Green Bond Principles (GBP) seek to support issuers in financing environmentally sound and sustainable projects that foster a net-zero emissions economy and protect the environment.”

The European Union’s definition leaves something to be desired. On the other hand: “Green bonds are committed to financing or re-financing investments, projects, expenditure or assets helping to address climate and environmental issues. Both governments and companies use them to finance the transition to a more sustainable and low-carbon economy.”

There are plenty of ways to “address climate and environmental issues,” which opens doors into greenwashing, as the EU and others are now finding out and setting their sights on the green bond market with a view to tightening regulation to avoid the dreaded practice.

In the UK, for instance, earlier this year, the financial markets regulator warned banks they needed to tighten their green lending standards and insist on more serious target-setting by borrowers. The reason: current targets were often meaningless and would make a material difference in a borrower’s carbon footprint.

Yet the standardization of green bonds remains elusive. Some investment firms have more stringent requirements than others, and that’s about it. And now, there’s a blue bond on the scene to make it all even more complicated at a time when banks are trying to figure out a way to report emissions from their clients’ activities.

The blue bond was arranged by Bank of America and will provide Gabon with $500 million to boost marine conservation efforts. In exchange, the country would get a lower interest rate on its debt and an extended repayment period. Interestingly, the Financial Times notes that “the bank said it could not guarantee that the description complied with sustainable investing standards.”

As one former IMF head of debt and capital markets told the FT, “If they decided to spend all the money on the president’s private airplane, so be it. If I was an investment manager I would be concerned I couldn’t put this in a green bond portfolio without being sued for false advertising,” Daniel Hardy also said.

In other words, while on the face of it green bonds are a great way to pursue decarbonization goals, below the surface, it gets complicated—often so complicated as to become outright suspicious. It becomes even more suspicious when you’ve got banks using green bonds as a way to decarbonize their own operations, turning them into a tool for lowering emissions and setting targets for the total amount lent under green bonds, whether or not they are actually green.

Theoretically, it would be easy to ensure the bonds are indeed green: the lender or a third party simply has to check that the money is being used for the purpose it was borrowed. Practically, this would require the use of additional resources – lenders would basically be policing their clients. 


Green bonds are, on the face of it, an excellent way to pursue transition targets by motivating companies to not just talk about lowering their emissions but actually to do it. As usual, below the face of it, things are more complicated and more fraught with risks for the transition-focused investor.

Perhaps green bonds won’t end up like carbon offsets, the majority of which was recently revealed to be worthless. But unless lenders can come up with good enough assurances that a green bond will indeed be used for a green purpose, there might be an investor outflow from that market segment at some point.

By Irina Slav for Oilprice.com

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