How do market players understand green bonds as different from infrastructure bonds?

To investigate the difference between green bonds and infrastructure bonds, 15 market participants including issuers, investors and verifiers, were interviewed in the UK, USA, Canada, France, Sweden, Belgium and Australia. These interviewees represent 38.6% of the global labelled green bond market which currently has total outstanding issuance of USD65.9 Billion. These semi-structured interviews provided insights into their understanding of the green bond market and the decision-making processes to be involved in the green bond market.

The market participants referred to the governance structure and counterparty to differentiate between the two bond options, labelled green bonds and infrastructure bonds, instead of the projects being funded. The participants believed that verification in the form of the Green Bond Principles (GBP) provided commonality and definitional certainty to the market. However, they also acknowledged that as a self-labelling mechanism, the GBP relied on the reputational credibility of the issuer. Participants understood green bonds to definitely provide a positive environmental impact and were seeking measurability from these, thus limiting the green bond projects to climate-related infrastructure. They believed that the green bond market was viable in the medium term with growth expected from the corporate and municipal issuers. Market participants supported the development of project specific accreditation to mitigate risk, particularly for corporate issuers. They reported that labelled green bonds were priced in line with similar issues from the same issuers, and initial considerations around liquidity and scale were not seen as limitations.

This research looks at the attitudes of the labelled green bond market participants and seeks to revisit the findings of Wood and Grace (2011) in light of the significant growth of the labelled green bond market since their initial research.

AUTHOR: Michael Paul Lambden