The green bond market needs stronger standards defining what projects qualify as environmentally friendly investments, said the head of the Goldman Sachs Group Inc. group that monitors the sector.
Kyung-Ah Park, who leads the bank’s environmental markets group, said investors are reassured by the green bond label but often don’t know exactly what they’re getting, much as grocery shoppers gravitate toward food labeled organic even if they don’t know why it qualifies.
“The green-bond label provides them with some immediate level of comfort,” Park said at the Bloomberg New Energy Finance conference in New York on Wednesday. “We need to drive the market to get investors comfortable with the overall quality of green bonds.”
The market has issued $80 billion of securities since 2010 and is forecast to grow by the same amount this year, according to a Bloomberg Intelligence research note released Friday.
As more green-bond-backed projects proliferate, investors will seek more details about what underpins the quality of the bond, she said.
“Greater deployment and greater visible cash flow means we have many more financial tools in our toolbox that we can open up to clean-energy companies,” Park said. “As this market evolves, investors will become more sophisticated and will require more definition of what green is.”