When investors go green

Guest blogger Pernille Holtedahl unpacks the growing appetite for green bonds and suggests this is a movement driven by the broader public – not just business.  

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Pernille Holtedahl is the founder of Blue Maia, a green finance advisory firm
18 November 2019
Profit with purpose: the role of business in achieving sustainable development
A series of blogs and interviews exploring how business and investors can contribute to achieving the Sustainable Development Goals
A young man on a hillside, planting a tree.

Tree planting to restore the Mau Forest, in Kenya. Green bonds issued have helped finance tree plantations (Photo: Antony Odhiambo/Global Landscapes Forum, Creative Commons via Flickr)

Some US$216bn worth of green bonds have been issued so far this year, according to the Climate Bonds Initiative. That compares with around $170bn in 2018. And since the run-up to year-end tends to be busy, total global issuance for this year is predicted to handsomely overshoot the 2018 figure. 

But how significant are these numbers? And do green bonds live up to their hype?

Let’s start with a reality check on the size of the phenomenon. Green bonds, while frequently claiming newspaper column inches, make up less than 1% of the overall bond market (estimated to be around $100 trillion). In terms of volume, green bonds are still small fry in a very big pond.

But there’s no doubt there is solid interest. So, what’s the draw? In my experience, there are several benefits of green bonds, for issuers and investors alike. 


Investors buy green bonds because they want to be part of the transition to a greener and more climate-resilient future. As well as for ethical reasons, they do it because they believe that, in the long run, ‘green’ assets will be less risky than ‘brown’ ones.

The funds raised are dedicated to environmental purposes, with the Green Bond Principles as the most widely used reference for what qualifies as ‘green’. Pension funds and other asset managers increasingly face mandates for investing ‘responsibly’ and green bonds are a welcome outlet for this mandate.

There are benefits to the company issuing the bond as well: in addition to diversifying their investor base, it is common to hear bond issuers testify to the educational process they go through when preparing to issue a green bond. Companies often talk about how they have benefited internally through the creation of greater environmental awareness and cooperation across business segments. 

Teething problems? 

But since they first appeared on the scene some 10 years ago (the World Bank was the first issuer), green bonds have faced their fair share of criticism. It has been argued that they represent ‘greenwash’ and that they don’t offer anything new beyond what standard (‘vanilla’) bonds do.

To some extent, the critics are right. At times the green bond label has been applied with less than ideal levels of scrutiny. This recent report, for example, describes how a green bond issued in Brazil in 2017 has financed fairly standard tree plantations geared more towards commercial ends rather than reforestation. 

But let’s remind ourselves of one key point. Bonds are essentially debt instruments, like loans – they don’t pretend to be anything else. Their primary focus is to raise money – not necessarily to offer breakthroughs on how to finance environmental projects. 

Also in the series

Blog: Ten reasons why we have to rewrite the sustainability rule book, and now – Mike Barry shares tips on how to become a sustainable business leader of tomorrow

Interview: IIED’s Laura Kelly puts questions to Chris West from Sumerian Partners on the lessons and challenges from impact investing

Blog: We need more than business as usual, to leave no one behind – Rijit Sengupta discusses the challenges and opportunities for businesses in India seeking to raise the bar on sustainability

Blog: When investors go green – Pernille Holtedahl unpacks the growing appetite for green bonds

Blog: Is Davos signalling the end of business as usual? – to coincide with the World Economic Forum, Andrew Norton asks how a progressive sustainability manifesto can omit climate change

Blog: Wanted: corporate global citizens to deliver the SDGs – as global citizens, businesses have a prominent role in the collective achievement of the SDGs, explains David Croft

Rather than criticising green bonds, I would argue the underlying problem is a misperception about what green bonds are and what they are designed to do. Most green bonds are issued by corporates (or governments) with good credit ratings that are simply wishing to finance, or refinance, their assets. Expressing social and environmental intentions is part of their motivation, but it may or may not be the primary driver. 

Rather than expecting green bonds to be a panacea, we can take a different view: we can see green bonds as part of a bigger movement where investors are seeking purpose and positive impacts as well as returns. If we take this approach, the discussion becomes more meaningful (and less frustrating). 

A green movement

What could this broader movement be made up of? For businesses looking to increase their purpose, green bonds are just one of a range of options.

Natural capital accounting, for example, enables companies to list their assets and liabilities in the natural world in the same way they have traditionally listed other (produced) assets and liabilities. Accounting for impacts and dependencies will not automatically change corporate behaviour – but it can be part of a process that builds a ‘conscious culture’ within a business.

The old adage of ‘if you can’t measure it, you can’t manage it’ should give businesses motivation, while the Natural Capital Coalition provides them with protocols for how to do it.

Other options, such as discounted green loans, directly target firms’ incentive structures.  The French electricity giant Electricité de France has announced a revolving credit facility that offers discounts for reaching green key performance indicators. In other words, your loan will be cheaper if you can prove that you are improving your environmental performance. 


Green bonds, natural capital accounting and discounted green loans are all part of a shift towards more purposeful business – the flipside of which is purposeful investing. Anecdotal evidence shows this trend is clear (I have recently been offered to switch my pension to a fully ‘sustainable portfolio’, and I know I am not alone). And data backs this up: according to the Global Sustainable Investing Alliance, the market for sustainable investments grew 34% between 2017 and 2018

Private enterprises respond to needs in the market, be that in what they sell or in how much ‘purpose’ they have. The driving force behind purposeful business is thus in large part purposeful investors – and they will determine the pace and direction of developments. Investors are already voting with their feet by divesting from CO2-intensive sectors and investing in green ones.

The future may see us looking back at the emergence of green bonds and conclude that this was the start of a trend: the beginning of a process when the public at large – not just businesses – began acting with purpose.

About the author

Pernille Holtedahl is the founder of Blue Maia, a green finance advisory firm. She has been involved in the green bond market since 2012.

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