By Abdullahi Lukman
A new study by the Bank for International Settlements (BIS) has revealed a strong correlation between companies issuing green bonds and a substantial decrease in their greenhouse gas (GHG) emissions, particularly within high-polluting industries.
The analysis, published Tuesday, examined the impact of the nearly $3 trillion green bond market, where firms raise capital for environmentally beneficial projects.
The study found that, on average, green bond issuers experienced a greater than 10 percent reduction in overall emissions within four years of issuance.
Furthermore, emissions intensity, measured as emissions per unit of revenue, demonstrated an even more significant 30 percent decline.
“The results show that green bond issuance is associated with a significant reduction in firms’ subsequent GHG emissions,” the BIS report stated.
While acknowledging concerns surrounding corporate ‘greenwashing,’ the study emphasized the increasing transparency driven by the nearly six-fold growth of the green bond market since 2018 and the expanding participation of government issuers.
Although green bond issuances typically represent a small portion of a company’s overall financing, the study concluded that they serve as a valuable “signal” of a company’s commitment to environmental sustainability.
Specifically, the intensity of “Scope 1” emissions, such as those from company-owned vehicles and furnaces, decreased by approximately 21 percent on average within a year of the first green bond issuance.
Similar reductions were observed in broader “Scope 1-3” emissions, which encompass emissions from the supply chain. Notably, emissions intensity remained significantly lower for direct emissions even after three years.
The study utilized S&P Trucost data, representing an estimated two-thirds of global GHG emissions, which are heavily concentrated in manufacturing and energy-intensive sectors within countries like China, the United States, Japan, and India.
The research highlighted that “heavy emitters” are often the ones demonstrating the most significant emissions reductions post-green bond issuance.
“Given the skewness of carbon emissions, this is critical in terms of societal ‘net zero’ objectives,” the study remarked, underscoring the importance of these reductions in achieving global climate goals.