As the cumulative issuance of labelled green bonds passes the $1trn mark, a debate on the relevance of the ‘earmarking’ a bond’s use-of-proceeds is finally taking place.
On the one hand, a growing chorus of voices suggests that earmarking use-of-proceeds is a nice marketing trick, but what actually matters is the environmental trajectory of all investments made on the ground, and the trajectory of issuers’ balance sheets. After all, green bond investors are exposed to these balance sheets rather than the earmarked projects
On the other hand, the wider green bond industry continues to advocate for the idea that ‘use of proceeds’ is the only thing that matters, and that earmarking equals “financing” the green projects at a project-finance level.
Influenced by lobbying of the latter group, the European Commission and its Technical Expert Group on Sustainable Finance (TEG) have picked their side in this debate. The Commission has endorsed the…