The trillion-dollar greenwashing market
- Felix Salmon, author of Axios Markets


More than $1 trillion of green bonds have been issued in the past two years, but at this point maybe they should be called celadon — still green, probably, but barely so, and largely indistinguishable in price or documentation from their non-green counterparts.
Why it matters: Green bonds mean new money going into projects that will help save the planet. In that sense, they should be far more effective than ESG funds that simply buy pre-existing stocks from other investors.
- But if you look at what the green bonds actually promise, it's not very much.
What they found: Law professors Quinn Curtis, Mark Weidemaier and Mitu Gulati examined almost 1,000 green bond prospectuses over the past decade.
- In 2022, just 28% of them included language actually holding the issuer to any green promises.
- Indeed, 61% specifically disclaimed any duty to invest the proceeds in a green manner.
The big picture: Governments are cracking down on greenwashing — the act of making financial investments look greener than they really are. So far, however, green bond issuers have not found themselves in the crosshairs.
What they're saying: "What emerges is a clear trend away from enforceability," write the authors.
- Issuers see plenty of demand even when they weaken or remove promises; as a result, they're unwilling to risk legal liability should they fail to fulfill such promises.
- Because the yields on green bonds aren't appreciably lower than the yields on regular bonds, companies also have relatively little financial incentive to make such promises.
The bottom line: The status quo seems to be working fine for issuers and investors. If green bonds are going to fulfill their potential, then regulators are probably going to have to step in far more aggressively.