What happens when green bonds get polluted?
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What happens when green bonds get polluted?

How green should a green bond be? Should the company issuing the green bonds have to be green itself, or is it enough that the projects that the bonds are funding are of a hue most verdant? And just how green are those projects they are funding?

Car makers have often found themselves in the crosshairs of green bond critics. Some green investors have targets for the impact on carbon reduction by the green project the funding will support. Those investors do not buy car maker green bonds as they do not judge the issuance supporting the production of hybrid vehicles to be green enough.

The hybrid vehicles may reduce the fossil fuel the car burns, but the electric power has to come from somewhere and quite often that is from a fossil fuel burning power station fuelling the national grid.

But again, there are investors who will argue that as power networks are weaned off fossil fuels and on to renewable sources, the technology in those cars will naturally become greener. So the car companies should be supported in their efforts.

But what if that same car company is found to have suppressed the development of technology which could reduce the emissions of its vehicles immediately? That is what Volkswagen, an issuer of green bonds, is being investigated for by the European Commission. If it is found guilty, surely any green bonds the company has issued should immediately have their green status revoked and any investor that wants to retain its green investment credibility should divest its holdings.

If green bonds and their issuers are to retain any credibility, they should not be allowed to be polluted. The investors should be investigating that, not the EC.

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