New study reveals 80% of sustainable bonds fail to meet global climate goals
![New study reveals 80% of sustainable bonds fail to meet global climate goals](https://sustainabilityeconomicsnews.com/wp-content/uploads/2024/03/arrangement-with-banknotes-wooden-cubes-scaled.jpg)
New research from the investor-oriented nonprofit Climate Bonds Initiative (CBI) indicates that over 80% of the 768 sustainability-linked bonds issued between 2018 and November of the previous year do not conform to global climate objectives.
These sustainability-linked bonds (SLBs) represent approximately $280 billion in issuance. CBI Chief Executive Officer Sean Kidney sees them as having significant potential to facilitate the transition to a greener global economy.
However, in a statement to Bloomberg, Kidney highlighted that the market suffers from a lack of regulation, describing it as “operating in the wild west.”
Also read: OCBC doubled SME sustainable financing in 2023
Sustainability-linked bonds (SLBs) resemble conventional bonds but include a crucial distinction: They incorporate incentives for issuers to meet predetermined sustainability objectives. Failure to achieve these goals often increases the interest rate.
One appealing aspect for issuers is that SLB proceeds can be allocated for general purposes rather than specific projects, a flexibility not afforded by green bonds. Consequently, the SLB market attracts heavy polluters such as cement producers or steel manufacturers who may struggle to identify projects eligible for green bonds.
Also read: Green finance pioneer Uruguay seeks ESG loans from multilaterals
In 2021, issuance volume reached approximately $110 billion, but investor interest has waned since then due to criticism of some companies in the SLB market for setting low-ambition goals with minimal consequences, a practice often termed greenwashing.
According to the Climate Bonds Initiative (CBI) research, based on CBI’s assessment methodology, only 14% of SLBs issued adhere to the Paris Agreement’s objective of limiting global warming to well below 2°C above pre-industrial levels.
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