Just How ‘Green’ Are Green Bonds?

to finance a project. The investors are paid back with interest, and they get to feel good about themselves for putting their money into a cleaner future. The increasing demand for this kind of ethical investing has led to an explosion in the number of green bonds of every description. The thing is, it's not always easy to tell if projects described as green really are or if it's just clever marketing. That's what we're digging into today, and we'll start with

the basics. My colleague Aaron Rutcoff joins me now he oversees climate and environmental coverage at Bloomberg Green. Aaron, thanks for coming on the show, Thanks for having me with what is a green bond? Green bond is you're borrowing money, you're taking on debt, and you're spending that money on an explicitly pro climate, pro environmental energy transition oriented project. And who's issuing these bonds, Like who's borrowing and who's

looking for this money? You could be a sovereign government, so you know, you could be the government of India who just entered the green bond market for the first time, and you're trying to use this money on you know,

big infrastructure projects on solar farms. Controversially, you could be a fossil fuel company and you're trying to lower the emissions with some of your refineries, or you could be trying to build renewable energy infrastructure for a big company that's trying to put solar panels on the roof of

its warehouses. All of that would follow every bonds. So you're issuing these bonds, you're saying, hey, buy these bonds, you'll get a return on them, and the money is going to be used for good right right, And it has to have dedicated green purpose. It can't just be an all purpose debt instrument to raise money for your company. It's got to be or your government. It's got to

be going directly to some explicitly named green project. And so that's the difference between say a green and in regular bond because governments and companies they issue bonds all the time to pay for projects, and the deal is sure, you give us the money and you'll get a return, right.

And I think one of the reasons why green bonds are appealing is because people who might invest in your debt can be the people who just like your government or your company as an investment, right, like your normal people who would be interested in such a thing. But you also open up a whole wider world of people that are interested in marketing themselves as having invested in e s G. E s G is environmental, social and

governance criteria for investing. It's hugely popular now in addition to everyone else who might have previously been interested in your debt, you now have e s G investors. These green bands have become very popular. How big is the worldwide green bond market right now? So, uh, it's only

been around since two thousand seven. So if you want to go lifetime two thousand seven and now you're at three point eight trillion dollars, And if you want to look at a more recent According to Bloomberg, in e F in the first half of this year there was four and ninety two billion dollars and and every month, you know, it goes up and down, but you're seeing tens of billions of dollars of new green bond activity.

You know in any given month right now? Is there any standard that you have to meet for a green band, like you have to fulfill these requirements or can anyone just claim that their bond is green? So wes If you want to do a green bond in Europe, there are standards there. Europe was the first one to go

into green bonds in a big way. There's still the biggest market for it, and they're the furthest along in regulations, so they're in the process of adopting very clearly defined standards and most of the time those standards are being observed right now, even if they don't have the full

force of law because they're not finalized yet. But if you're doing it in the US, it's gonna be like so many climate things under a voluntary standards, So there's a standard setting body you're supposed to be complying with their rules and there's certain you know, processes, like your most bonds, you don't have to report on the activity that's going into the bonds. Like if you're doing standard corporate debt, you don't have to do any special reporting

to meet that bond criteria going forward. But with green bonds, under the voluntary standards in the US, you're gonna be making statements about, you know, how's that hydro electric project going, or how's that battery project that you took the bond out for. And that makes it easier for people like a journalist to look into what's happening. But you know, in the U s, if you want to know what's truly happening in a green bond, you know you're gonna

need to look into it. A regulator that's going to come in and penalize you if you're if you're not following the rule. I imagine you spend a lot of time with the Bloom Green team trying to find out whether these projects are green. Do you find a lot

of them that claim to be that aren't. Yes, Yes, there was recently some work we were doing looking at data centers in the US as a particular user of green bond Now I'm not the standard setting body by any means, and I certainly wouldn't be making like a one size all decree here. But data centers produce a lot of emissions, and so it's not obvious if you're just looking at it on the service that that would be the greenest of all possible investments. Are the results

being seen from all this money being spent? So, like, can you measure it in the atmosphere in terms of like is carbon dioxide going down because we have green bonds? I think there's been a lot of capital that's moved into green projects in a way that you know, a good amount of it is is positive. It's brought a lot of finance into renewable energy. Now there's an economic basis for renewable energy in a way there wasn't before.

The cost of building solar or wind is often going to be the cheapest new source of energy anywhere that you go. So if the question is, like our green bonds transforming the planet so that it's much more sustainable, is it going to the places that are the hardest city carbonize and bringing a lot of money in, I think they're The answer is a little more difficult to see guidelines on really what is a green bond and what is not, so that you don't just slap that

label on for a good look. We tend to see a lot of green bond activity going into things that are already very safe and established, and what you're not seeing is green bonds as a way to say, decarbonize the Asian industry or some other kind of heavy industry that's really difficult right now to solve where we really

do need more capital to bring about climate solutions. So right now you're seeing a lot of it go to things that are already very successful and maybe not as much going into the big innovations that we need for like the next step of decarbonization. I hear this phrase greenwashing a lot when it comes to green bonds. What

is greenwashing? Greenwashing is just making a claim of climate impact or de harbonization or environmental positivity that's really a mask for business as usual or a practice that isn't helping very much. Do you see a lot of greenwashing in green bonds? Yes, I mean you can very easily find projects that don't seem to really map onto a very effective or measurable decarbonization. Drawing green bonds. You can find things where the money is going to places that

aren't positive at all, that might be negative. I mean that the example of a data center drawing green bonds, You're gonna have a lot of questions, so you're gonna want to ask about that project. There are fossil fuel companies that are drawing green bonds while they're still building new fossil fuel resources. You know, still the green bond might not be going to that, but it's going to

the same company that's also expanding it's fossil fuel. You're going to have a lot of questions you're gonna want to ask. And in the world where in right now you're going to have to really look closely at each project before you you can feel absolutely certain that it's not connected to green washing. Therein Rudcoff, thanks for coming on the show. Thanks for having me. West one country putting that green label on all kinds of projects China.

We talk about that after the break. Rebecca Jung Willins joins me now. She is a government reporter for Bloomberg based in Hong Kong. Rebecca, you and our colleagues Caroline Khan, Shirley and Adrian Lung have written this big story taking a look at China's green bands and where that money is really going. That's not always an easy thing to find out, is it. China has built one of the

world's biggest screen bond markets. It's raised more than three hundred billion since twenty fifteen, and it's really sort of focused on trying to rain in some of the environmental problems in China. But like many parts of the world that have tried to develop these sort of queen financing markets, that have been real concerns about disclosure and gaps and

issues with transparency. So they built a three hundred billion dollar green band market in really just seven years, and it's central because President ju and Ping has made this a very important part of China's sort of green energy transition. Is that right? Absolutely? So, China's sort of green ambitions have been a central part of Season Ping's policy. He's placed at the heart of a lot of what the central government has sought to do over the past decade,

and he's really done more than any other leader. He said to be a true believer in the environmental cause, and a lot of that initially focused on trying to curb really excessive pollution in many of China's megacities. She's Pink's ambitions for China's environmental policies sort of continue to be dominated by phrases that he has, including this one that mountain and river green are mountains of silver and gold,

and that's not going to be cheap. And the reason why they're issuing these bands in part is because by their own estimates, it's going to cost just like an astronomical amount of money. Absolutely as so, by their own projections, it could cost upwards of eighteen trillion US dollars to fund this green transition. So it is an immense amount of money, and in that context, China's green bond market

so far is just a small sliver of that. So you looked at a bunch of different, big, ambitious projects that some of these green bands are going to fund. In your question was how green are they? What are

some of these projects? So one of the interesting projects that we looked at was this Herbey Iron and Steel company, and it was initially intended this bond to sort of help with pollution provincial and control, but it was actually in part used to fund the relocation of a factory that had already happened, so the factory was moved from Herbe's provincial capital, and residents there were of course pleased

um and said it had helped with pollution. But the issue, I think is that the plant's new neighbors are skeptical about the green credentials or the environmental friendliness of that project. So we spoke to one man who runs a private bus line in the area where the new factory has been built, and he suspects that the pollution prevention system is actually turned off when nobody's watching, and he noted that the smoke you can see smoke from the factory

better at night. He also pointed to the dilapidated buildings that belonged to former villages in the new areas and said that he was planning to leave soon and that nobody lives there anymore, saying that one more transparent element about the project is that it did include its targets

for emission and pollution reduction. So, for example, set out to try and save more than a hundred and fifty thousand tons of coal and more than eight hundred thousand tons of water and more than eighty thousand tons of c O two emissions, so it did lay out some explicit targets. You tried to sort out which of these big projects funded about green bands were in fact green projects.

Can you tell us what you found? So we took this sort of case study of thirty five of some of China's biggest green bonds from more than a thousand of the securities that have been issued so far, and of the ten of the biggest bonds, about half of them didn't have any disclosures about what type of projects they were going to, and one of the biggest bonds, although it disclosed more than two twenty different projects, didn't really specify what types of projects and what actual projects

they were going to. So we did find there were these transparency issues with that case study. One of the criticisms of green bands is that buyers don't really have a very good idea of how green the project actually is, and with China that seems to be an especially big problem. So until relatively recently, green got bonds could actually be used to fund so called clean coal. That was something

that was very controversial, particularly with international investors. That's no longer now acceptable as part of the green bond framework, and it's just one of the things that authorities have laid out to try and bring the standards of China's environmental bonds closer to international standards and closer in particular

to Europe set US. Instead, some of those companies, those coal companies, could in turn try to issue transition bonds which would help with that movement to an alternative source of energy or to find cleaner ways of producing energy. So who is buying all of these bands? If they have just eventually have trillions of dollars of investors, they're not all in China? Who is investing in bands where

it's not always clear where the money is going? So about Chinese green bonds are denominated in U n so those that were so known as local bonds, and they're largely really accessible to local investors. That leaves about thirty percent of bonds which are denominated in hard currencies, typically in US dollars, and these are the ones that are

much easier for international investors to buy. So the bulk of the bonds that Chinese companies issues are are actually predominantly bought and sold by local investors, and particularly really by financial institutions and authorities themselves have urged the market to step in and try and boost am on for these types of notes. One way to boost a MAN, I suppose, would be to increase the transparency around what

an investor's money is being spent on. Absolutely, so China has, for example, try to increase and improve standards around green bonds, particularly trying to introduce these taxonomys, systems of classification and make them sort of closer to European standards, which are sort of considered. I think that the best in show here, and that's essential to attracting particularly international investors, who typically have higher standards when it comes to fulfilling the requirements

of their green mandates on funds. For example, you mentioned that of the buyers of these bands are local investors paying in yuan. It's not at all clear that they're all buying these bands because they're green. What other reason would they be buying these bands for. So it's not really clear that we're seeing many local investors choosing to buy lots of these bonds because of their green credentials.

A lot of them seem to be bought and sold by financial institutions themselves, so I think there is an imperative felt from these financial institutions. Many of which are state banks to meet these sort of policies that are set out at the top to try to buy, sell, and engage in these green financing markets. But it's not really clear if the market itself has been motivated to

engage to buy green debt because of the environmental goals. So, for example, we haven't seen a massive rush of green credit funds where the mandate or the requirement of the fund is to focus specifically on environmental debt. That's different from say in Europe, where we have seen more of that kind of activity. And does it look good for them to be investing in something that the presidentcy Jimping

has publicly said is important to him. Authorities do seem to be aware that they need to encourage the market itself to try and fill the gap when it comes to investing in this type of product and try and sort of generate demand from the market itself. But we have certainly seen companies looking to try and meet these green goals and selling debt, possibly even when it isn't necessarily something which would obviously fulfill some kind of green requirement.

Do you think that China will ultimately mirror Europe and other Western band markets which have greater, if not terrific transparency, or do you think they'll stay the same and other nations will start to mimic China in issuing a lot of bands without a lot of transparency. Well, China certainly has a different challenge to more developed countries. It's essentially trying to sort of still grow and develop its economy, move out of industrial phase, and meet these very ambitious

environmental targets at the same time. But I do think that China ultimately is trying to move towards these better standards that we see in Europe and other Western bond markets which have much greater transparency. So for example, moving away from using green bonds to find the clean coal, which is very controversial among international investors, plus now saying that all of the use of proceeds from bonds have

to go to green projects. Are two ways where China is trying to align its standards more closely with European standards. Do you anticipate that China will begin to really aggressively court outside investors to try to get international buyers for these bands. Well, on the one hand, I think the move to adopt some of these international standards does suggest

it is trying to create more integrated system. We have seen, of course, about a third of the bonds issued in offshore currency, that they are sold outside of mainland China, where it's much easier for international investors to access them, saying that the bulk of China's credit market, which is has been historically used to fund the enormous amount of its development, really is in the onshore market where it's they're really dominated by local investors and local financial institutions.

So the bulk of China's nineteen trillion dollar credit market is in fact onshore. Rebecca Jing Wilkins, thanks so much for talking to me. Thanks you very much for having me. What does a green band project that's actually green look like? Our producer in London, Frederica Romagnello, took a stroll down the Thames River to find out. I'm in London. I'm standing just underneath Blackfriars Bridge. It's the average London rainy day.

There is a little bit of sunshine, there's quite a lot of rain coming down, and I'm standing in a construction site with Camill Cocken High Camille, Fredrika Camille, you are the interim head of Treasury a tide way. Could you tell me a bit more about tideway and why of all places today we're standing in a construction site. London relies on a sewer built for a population less than half its current size, and as a result there's millions of tons, roughly fourteen million a year they get

pumped into the River Thames. We we're building a giant sewer which is going to intercept these bills, and I've lurned them into our into our super sewer. This will then we carried these words across the sewer. Treatments worked in Beckton out to the east of London, so Mill. We are standing now in the construction side of black Friers. Black Frier Station is just behind us. The tent is just a few meters in front of us. Obviously we cannot go underwater into the actual tunnel, but what does

that look like? The Thames Tideway Tunnel that we're building is a twenty five kilometers along long tunnel seven point two m with so enough to get three London buses side by side inside it. Just you can picture that it stretches from Acton in the west to Abbey Mills in the east. It will be capturing the forty million tons of raw sewage that's pubbed into the Thames every year. What about now, because now this tunnel is not operational, So where is that waste going at the moment? Currently

that waste is going into the Thames every year. Um, where we're standing here a Black Friers bridge. This is this is by the fleets here. So the combined mind sewerage overflowed, this alone pumps half a million tons of raw sewage into the Thames on average every single year. So the reason why we're talking about this specific project during this episode about green bonds is because part of the funding for this project has come from brain bonds. Could you tell me more about who is financing this

project where the money is coming from. So the money is coming from a combination of of equity and debt. So first of all, we've we've had the support from shareholders who have invested one point three billion of their own money of equity into the company and that's been injected as cash and used for the construction of the tunnel. We've had a further one point eight billion in green bonds of the total three billion of that issued, all going into the construction of this asset, and when it

comes to those grain bunds. In twenty seventeen you publish a framework for the issues of said green bunds, which was later updated in twenty twenty and also earlier the CEO is heabrary. What does the framework entail? Concretely? That framework is there to ensure that proceeds of the bonds are being used correctly. Now, in Tideway's case, every single penny that we receive is going into a project that's

delivering massive environmental benefits. When it comes to the actual building of this tunnel, what sort of green policies and green strategies that are you're putting in place as a company during the building phase. One example of that is runs fronts us here with the barge Tideways, a massive construction project going through the heart of London along the River Thames and impacting some of the business business areas

and with with twenty four construction sites. Now on a project of this scale, there's a lot of material being excavated, the lots of material needed and enjoying the construction process. And what these barges have been doing is taking taking a lot of that traffic off of the roads and moving it by river. That brings multiple benefits. So in terms of safety for people in the street, there's there's fewer fewer vehicles on the road. That's also taking pollution

off of the road, delivered in a more environmentally friendly way. Um. Some of these bargets are being run on hydrogenated vegetable oil. Now, lots of this material that's been excavated. It's it's good quality material and in rain Um in Essex we've actually used it to create a wetland area for birds. When is this project going to be finished and what does that mean for you know, the esthetic of the tense

really So we're entering a new phase in Tyler. So with most of the construction complete, all the all the type primary tunneling has completed with we've done the majority of the secondary lining UM. So the new phase that we're entering now is the commissioning. So it's the over the next couple of years we'll be doing all the testing, making making sure it's operational. Where we're standing here at Black Friars, this is one of the places where we'll

have the last thing visible legacy of the project. We expect the project to become operational in camil cockin Entrinum, head of Treasury at Tideway, Thank you so much for joining me. Thank you, Federica, thank you for having me. That was our producer Federica roman Yellow and you can read the China Green Bond story Rebecca Chung Wilkins talked about at Bloomberg dot com. Thanks for listening to us here at The Big Take, the daily podcast from Bloomberg

and I Heart Radio. For more shows from my Heart Radio, visit the i Heart Radio app podcast or wherever you listen. Read today's story and subscribe to our daily newsletter at Bloomberg dot com. Slash big tag, and we'd love to hear from you. Email us with questions or comments to Big Take at Bloomberg dot net. The supervising producer of The Big Take is Vicky Burgalina. Our senior producer is Katherine Fink. Our producer is Frederica Romaniello. Our associate producer

is ZENEB Sidiki. Raphael M. Seeley is our engineer. Original music by Leo Sidrin. I'm West Cassova. We're taking a pause for the Thanksgiving holiday here in the US, and we'll be back on Monday with another big Take. Enjoy your weekend,