Differences Between Self-Labeled and Certified Green Bonds
1. Third-Party Verification
- Certified Green Bonds: These bonds undergo external verification by third-party organizations. They adhere to established guidelines like the Green Bond Principles (GBP) and often receive ratings from organizations such as CICERO, Vigeo, or Sustainalytics. This external validation enhances their credibility regarding their environmental impact.
- Self-Labeled Green Bonds: These bonds are simply declared as “green” by the issuer without external validation. While they might align with environmental objectives, they lack formal certification and external assurance.
2. Credibility and Transparency
- Certified Green Bonds: The external validation process provides increased transparency and credibility, reducing information costs for investors. This is because investors can trust that the proceeds are used for genuinely green projects.
- Self-Labeled Green Bonds: Since these do not involve external oversight, there is a higher risk of greenwashing. Investors may find it difficult to verify whether the funds are truly being used for environmentally friendly initiatives.
3. Risk and Yield
- Certified Green Bonds: Studies have shown that certified green bonds typically offer lower yields compared to non-certified or self-labeled bonds. This difference, often referred to as a “greenium,” reflects investors’ willingness to pay a premium for the assurance of environmental impact.
- Self-Labeled Green Bonds: These generally have higher yields due to their lack of third-party validation and higher perceived environmental risk.
4. Market Acceptance
- Certified Green Bonds: Widely accepted by ESG-conscious investors who value the increased credibility and assurance of environmental impact.
- Self-Labeled Green Bonds: May face skepticism from investors due to the potential for greenwashing and lack of rigorous external review processes.
Overall, while both types of bonds are intended to support environmentally beneficial projects, certified green bonds offer greater assurance and credibility to investors through their rigorous external validation process.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/what-are-the-main-differences-between-self-labelled-green-bonds-and-certified-green-bonds/
