Discussion
Copenhagen Business School Master Thesis 15 Sept 2021
social actors in the corporate energy sector to institutional pressures. Furthermore, under the EU GBS external opinion providers such as CBI or CICERO must be verified as a capable third part, a requirement that separates the framework the ICMA GBP. These pressures act as deterrents for greenwashing and enable green bonds to better gain social legitimacy, and in extension, fertile ground from which to grow exponentially thereby financing the green energy transition effectively. As exemplified by Repsol’s issuance of a green bond that caused public backlash, informal institution’s in the EU act as additional institutional pressures, essentially dictating the rules of the game and enforcing regulative and normative structures. This was further exemplified by the exclusion of the bond from certain indices and third-party publicly stating misalignment with green definitions.
While insitutional theory may give an explanation to how certain corporates behave when faced with institutional pressures, the significance of the detterent-factor of these pressures could be overvalued. While not covered in this study, an analysis examining the correlation between public backlash related to an instance of green bond greenwashing and stock market price could shine a light on both causes. However, the chosen theory is very well suited to explain invisible, or rather underlying factors that affect the legitimacy of the green bond as a financing tool.
As all our interviewees indicated, green bonds are a tool to project a certain type of behaviour that is viewed as positive or sends a message to social actors. As Patrick De Nijs responded when asked whether green bonds are a means to signal shift in business strategy: ”a huge part of it is still also kind of PR presentation, wanting to highlights the good work they’re doing, you know, which is fair enough. I think diversification of investors is also a part of, part of the reason. Greenium, maybe not as much because it’s probably offset by the reporting process and that sort of framework costs” (Appendix 10.1). Thus, as both Emrah Oztunc and Patrick De Nijs expressed, what should be considered green needs to be taken in the context of the given market. Indeed, interviewee J. was also adamant that definitions of green-ness are dependent on the maturity of development of a given country or market, here specifically referring to China and its heavy reliance on coal. Throughout all three was argued that social factors must be taken into consideration when evaluating impact and judging what is sustainable behaviour. It is therefore key to balance social considerations with the urgency to push a energy transition.
Since the discussion set out to test whether or not green bonds facilitate improved envi-ronmental performance in corporate issuers in the energy sect, a significant aspect of the analysis has been dedicated to proving that green bonds do not just talk the talk but also
Page 96 of 198
walk the walk. This is meant in the sense that the green label which denotes its use of proceeds and supposed positive or mitigating impact on climate change must be deserved, and once this is fulfilled it can be concluded that in this context it is more or less effective.
The most significant result from our analysis is showing the environmental performance increase post-issuance compared to vanilla bonds.
While green bonds may be an effective tool to facilitate decarbonisation in the energy sector, another perhaps more important aspect to consider is the financing gap and project gap that exists in greening the energy sector. Patrick De Nijs stated that in the EU green bonds will most likely be the most important financing tool in financing a sustainable economic transition. This, especially in the energy sector due to its transparency of information, being a high-quality and already proven financing tool, as well as an indirect effect that will now be discussed in more detail. In fact, interviewee J. stated that in the context of the broader financial markets, green bonds are part of building the infrastructure that will help finance the transition ahead. The institutions emerging as a result of green bonds are thus highly effective in enabling a more broad change in behaviour. In fact, interviewee J. stated that the green bond is acting as a catalyst for the broader market and instigates a snowball effect on sustainable financing, indubitably further enabling a green energy transition. The effectiveness of EU green bonds in enabling a transition thus goes beyond simply measuring and analysing quantitative data.
In fact, if taking the three markets of the EU, China and USA under investigation, it is clear that these green bond markets exist in a kind of symbiosis. While their differences might initially appear to undermine each other in terms of definitions of green and differing energy mix, they in fact complement each other. As pointed out by Larsen (2020), these three markets are green bond or green finance leaders each in their own way. As confirmed by interviewee J. ”typically it is the US, historically it’s been the US. And on a broader scale, in a global context, it is still the US that is the market leader undisputed market leader, when it comes to the complexities and abilities of the financial market. But when it comes to sustainability overall, politically, but also in the context of sustainable finance Europe is the epicenter, not the US.” (See Appendix 10.2). As indicated in the interview with Emrah Oztunc, China is a pioneer in climate policy, particularly in the energy sector.
Green finance development, is thus driven by these three markets. China is driving large scale climate policy which affects the entire world of sustainable finance as well as shaping global institutions, the EU is a pioneer in building formal regulations around sustainable finance and green bonds in particular thereby driving legitimacy, while the USA is a
Copenhagen Business School Master Thesis 15 Sept 2021
leader in developing the green bond market and its wider acceptance in financial markets, essentially opening this market to more and more investors. All these factors influence the green bond, and in the context of this study, it is argued that these factors are largely positive in enabling a green energy transition through this financing tool, whether directly or indirectly.