Defining Green is Easier Than we Think

Conversations about Green Bonds – capital market bond instruments to fund capital investments with clear environmental benefits – share several conclusions most capital market parties agree on. First, Green Bond markets should further develop and grow in terms of their monetary value to help finance the investments with clear environmental benefits, for example those needed to keep global warming within a 1.5 degree Celsius scenario. And second, a need is felt to clarify what assets or projects can be considered as “green” for inclusion in Green Bonds. This article reflects on the clarification of definitions of ‘green’ and suggests actions for the further development of Green Bond markets.

Definitions make a difference but are never objective

Although Green Bonds and Green Bonds markets have much to gain by more transparency, the assumption that such clarity can be brought about by providing clearer and more elaborate definitions of ‘green’ and ‘Green Bond’ must be challenged.

First of all, the opportunities to provide alternative definitions for Green Bonds are almost endless. Definitions are never perfect or final, they could always have been different: wider, narrower, more precise, more closed or more open to new phenomena, etcetera (1). For example, some investors may want to invest only in environmentally green projects since they are committed to an ambitious low carbon agenda, and not be interested in investing in social housing real estate. Actors chose the definitions they want to align with their investment strategies, objectives, green bond funds or corporate policies.

However, environmental and social aspects are not separable. Climate change is a social problem: the environment does not have problems, only people and communities have. So, different investors have different cases to defend and different objectives to realise, and neither investor is wrong.

Second, we have to face the fact that both issuer and investor preferences do not only relate to the environmentally and socially relevant facts regarding directly measurable impacts, but also to their political and ethical preferences. Definitions of Green Bonds cannot legitimise those preferences, at least not completely. Definitions are never only science-based or objective, and therefore definitions or norms cannot ultimately decide what would be the best or ultimate definition of Green Bond (2). At least a part of the debate on definitions of Green Bonds seems to be based on pragmatic preferences – or call it political or ideological preferences.

We conclude that there is no objective, final and best possible definition of Green Bonds. We can, however, ask ourselves what the implications of certain definitions are, what they clarify and what they leave unaddressed, what problems they solve or unsolve, whose interests they serve. Definitions include certain phenomena and meaning, but they also – by definition – exclude phenomena, interests or voices in the market. Not even a government, the board of a standard setter or any other institutional organ can escape from this: all definitions still include and exclude certain phenomena and could have been different.

Diversity of definitions drives creativity, innovation and investment diversity

Second, the diversity of Green Bond standards and guidance represents mental diversity, which is both a condition for and a result of innovation. Offering diverse Green Bond opportunities to different market parties and market segments caters to different investment strategies and interests of a globally diverse group of investors. A diverse Green Bond market provokes thinking and dialogue about the market as a whole and about other standards and guidance as well. Green Bond issuers, standards and buyers will be challenged by each other to do better or explain why their definitions better serve specific purposes than others.

The diversity of viewpoints and pragmatic interests is of great use in the current debate about the perceived or alleged greenness of certain corporate bonds, such as those issued in fossil-based energy value chains. That is the market at work. It is creating viewpoints on what is sufficiently Green or not in a Green Bond, and it is providing answers that have not been made available by others to date. The debate both enables various actors in the Green Bond market to develop new ways of analysing Green Bonds and opining on them.

So what can we do to further develop Green Bond markets?

Even if we will not be able to formulate the ultimate Green Bond definition or framework that will satisfy all perspectives and interests of Green Bond markets’ stakeholders, we can do a lot to advance these markets. There is no need to wait for others, for better definitions, for government legislation or administrative decisions. Rather, we could and should use all of these instruments taking pragmatic next steps, acting upon the current situation. Solutions ultimately boil down to “where do I stand?”, “what do I do?” and to “to whom am I accountable?”.

Here are some concrete actions, that can be done by stakeholders of Green Bond to advance Green Bond markets:

  • A common language could be developed for Green Bonds that increases ‘ease of issuance’ and ‘ ease of investor understanding’ by showing the characteristics of a Green Bond that should be declared. This could work in the same way as and ISO standard, or the way in which the Global Reporting Initiative’s reporting standard shapes corporate reporting. ICMA’s Green Bond Principles and Social Bond Principles do provide a strong foundation for that. The language should be inclusive though, i.e. demonstrate how different definitions or conceptual frameworks are related, overlapping or different.
  • Second opinion providers could further make their norms and methods transparent to ensure consistency of judgement.
  • Green Bond standards and guidance-providing organisations could establish linkage documents explaining how their norms a, b or c correspond with recommendations x, y, and z of other schemes.
  • Stock Exchanges and market information providers such as Bloomberg’s or Thomson Reuter’s could make their Green Bond and Social Bond labelling more explicit and could provide comparisons of different Green Bond Frameworks by industry.
  • Issuers could declare in their sustainability policies what their ambition is towards sustainable funding. We live in a world where companies make every effort to show to what extent they have greened their buildings, transport, energy use, production facilities, purchasing, trading decisions, their tax ethics and how they incentivise their suppliers and business partners to do the same. Why not make the appetite for green or responsible sourcing of capital equally visible?
  • All actors could use and endorse the dozens of efforts already made by other markets and value chain actors in terms of certifications of sustainable products, processes and businesses. Declaring which sustainability certifications the assets and projects in a Green Bond already carry provides a clear and objective signal to investors, who can look for known third party certifications that have been long accepted by markets. For example, a business sourcing certified sustainable coffee or soy could very well fund this by Green or Social Bonds, provided this particular use of proceeds clarifies their environmental or social benefits.


(1) Umberto Eco, 2014. From the Tree to the Labyrinth – Historical Studies on the Sign and Interpretation. Harvard University Press, Cambridge, MA. Translation from the Italian.

(2) On the complementarity and undecidability of ideological and scientific evidence, see Yuval Noah Harari, in Homo Deus – A Brief History of Tomorrow, Chapter “ The Odd Couple”, pp. 208ff, 2017 (2016), Random Penguin House, London.