Can 'green' forms of finance help decarbonise society?
Towards the end of 2020 I published a paper that came out of my work as part of the REINVENT project. It looked at the role that new 'green' forms of finance can play in enabling decarbonisation.
In particular, I was interested in Green Bonds and Schuldscheine, two similar green financial instruments, which are increasingly popular among investors. In 2019 it was anticipated that $200 billion worth of Green Bonds would be issued that year.. Their rising popularity has led some commentators to proclaim that “green bonds can solve our climate crisis”, and the World Bank has gone so far as to claim that “the green bond turned out to be a history-making event”. However, despite their green label, virtually nothing is known about the environmental impact of green bonds and other green financial instruments.
I therefore set out to explore how these instruments are shapig climate mitigation efforts, in this case in the agricultural sector. I looked at the issuance of one Green Schuldscheine by a Dutch dairy company in particular. It soon became apparent during my research that the money raised through the Schuldschein was not directed to the company’s activities that generated the most significant climate impact: its farms. That raised a second question: Why was this flow of green finance not directed towards ‘greening’ these farms?
In answering this question I have loosely drawn on assemblage thinking as an analytical concept. This showed how narratives, company structures, (un)ruly forms of carbon, and institutional practices allcombine into a configuration that shapes where green forms of finance land, and with what implications. It highlights the importance of examining how sites and processes of landing are shaped by both the financial and the extraeconomic (so, cultural, political, social) relations of agriculture, or any other sector or industry for that matter.
As long as green financial instruments are not necessarily directed towards those economic activities where greatest carbon reductions can be achieved, we should be skeptical of claims that Green bonds and Schuldscheine have a “huge potential” to “tackle climate change”. It also brings into question claims that certain quantities of (green) investment are required to meet Paris Agreement goals, or other nationally-determined climate targets. Because if these types of finance do not target the most climate-intensive activities, then such quantifications may be a moot point. If we really want to understand the potential of the financial sector to contribute to the Paris Agreement it therefore remains essential to keep asking the question: where does the money go?
The full paper can be read here. If you cannot access it, please feel free to email me and ask for a copy. Alternatively, the 'accepted version' (so the version before the final editing and formatting was undertaken) can be accessed below.