The Future of Green Bonds in Financing Sustainable Projects

Abstract

Green bonds play a significant role in raising capital for environmentally friendly projects. This financial instrument has become popular and will extend its usage to many in-between categories. Nevertheless, this essay explores it regarding green and transition bonds. Section I focuses on their separation with a brief history of the green bond market, along with a review of AML and ELT types. It is vital to clarify the separate treatment of the two topics, as they have different aims and two separate outcomes. Green bonds have been analysed from the issuer side, the exemption of VAT being that of performative success. Instead, the focus here is on financialization, wherein the financial market is analysed from the viewpoint of a product approach. It has also been sought to demonstrate the intermediary importance of financial sectors in generating additional value. In complement, the literature that has mostly analysed securities’ green and ethical nature is extended by focusing on an in-between category that blurs the distinction between ethical and financial. It is argued that the situation in the financial market is particularly appropriate for this, where performative success can also be seen. Transition bonds exist on the edge of further taxonomies used in the literature and have gone further by indirectly financing heavily polluting activities. Pertaining to this discussion is whether there are suitable cases for transition bonds that can transcend EU directives, as in the GBEL example of Hungary. Section II introduces this legal lens with a theoretical framework discussing the concept of ELT and a brief history of its abuse. It is then argued that ELT can obstruct and corrupt the proper and effective rule of law and democracy and that it can transfer the good regulatory practice of crime policy to legitimate legislation’s fettering. The emergence, functioning, and collapse of transition bonds dedicated to the safeguarding national energy portfolio and the transition from mint emisson to nowadays securities-style industry loyalty policies are described. In its conclusion, predictions are provided about how it may affect the, still relatively small, market of GBELs.

Keywords green bonds, sustainable financing, transition bonds, financial markets, environmental projects, investment strategies, regulatory framework, climate finance.