Anton John Mifsud

Head of Legal, E&S Consultancy Limited

Green and Blue Bonds

Friday 15th May 2020

Green bonds are typically used to fund projects whose aim is to have a beneficial impact on the climate or the environment. On the other hand, blue bonds are intended to benefit marine ecosystems.

Around mid-2019, interest in green bonds gained traction (although green bonds have been around for more than 10 years). The same can be said for blue bonds during the first quarter of 2020. This came as no surprise – interest in global environmental issues has taken centre-stage and has dominated the global agenda during the past two years. Green and blue bonds have therefore come under the limelight and are increasing in popularity, especially which consumers of financials services who are sensitive to environmental matters.

From a regulatory point of view, these bonds are financial instruments as any other – the only difference lies in the destination and application of the funds raised. Essentially this means that the traditional forms of regulation would apply to them. However, how can a buyer of a bond have his mind at rest that what he is buying is really a green or a blue bond? How can one guard against project owners who try to depict a bond as a green bond when in actual fact it does little to address an environmental issue?

In my view the answer to this lies in the introduction of a set of criteria against which bonds can be benchmarked. This can feasibly be done under the auspices of a global or at least regional organisation. The role of the organisation would be to judge the characteristics of the bond against a set of objective criteria and determine whether the bond can be marketed as a ‘green’ or a ‘blue’ bond. Apart from ensuring a degree of investor protection, this can help to make blue and green bonds even more popular.