How green bond markets are (not) supposed to work

6 minute read

A green bond market where issuers can directly finance what has been called “the world’s most insane energy project” and still claim credit for refinancing a dozen windmills deserves to be questioned.

Could we avoid it? We look into the State Bank of India (SBI) potential Carmichael coal loan.

We believe that green bond investors, issuers and the bank community as well as other parties in the market should actively engage and dissuade SBI from providing the loan. If the loan deal goes through, we argue that any SBI bonds or loan facilities should be stripped of “green” status.

The Carmichael loan looks to be similar in size to SBI’s green funding, but with a CO2 footprint of at least 20x more than is saved through SBI’s green projects. Removing the green status after a potential loan would at least to some extent mitigate the reputational damage to the market. Failing to do so would give green bond market doubters plenty of ammunition, for a long time.

On the flip side, a successful engagement could provide a strong narrative around the positive impact of green bonds and/or investor engagement to dissuade companies from toxic fossil projects.