• Market doubled in past years, will inch upward 3.1% in 2015
  • `A lot of that pullback is being driven by tentativeness'

The breakneck growth in green bonds is stalling this year, weighed down by concerns over the economy and questions about how much they actually help the environment.

The market for bonds dedicated to renewable power, energy efficiency and other environmentally themed projects will probably reach about $40 billion this year, up from $38.8 billion in 2014, said Ethan Zindler, a Bloomberg New Energy Finance analyst, who spoke Wednesday at a conference on green financing.

Green bond sales more than doubled in each of the previous two years, as borrowers from solar companies to city governments sought funding from institutional investors, Zindler said. Yet issuers and investors alike have been flummoxed by a lack of standards for what projects can be labeled “green” and how to measure their benefits, according to underwriters, analysts and corporate executives who spoke at the conference at Bloomberg LP’s headquarters in New York.

Investors Worried

“A lot of that pullback is being driven by tentativeness, particularly by the corporate sector,” said Simon MacMahon, global director of advisory services for Sustainalytics, an Amsterdam-based consulting company. “They are worried about the cost, they are worried about the time it takes, they are worried they don’t have a handle on the impacts.”

While the green label has helped drive $100 billion in new issues over the last five years, the bonds “have failed to offer a clear yield advantage for issuers,” Gregory Elders, a Bloomberg Intelligence analyst, said in a research note Wednesday. Adding “a small premium” for the bonds may help revive the market.

Interest in green bonds may be waning for other reasons as well, Zindler said in an interview, from the economic slowdown in emerging markets to uncertainties about when the U.S. Federal Reserve will raise interest rates.

“It’s just generally been an interesting and challenging time to raise capital,” he said.

Green Principles

A coalition of banks last year issued a set of green bond principles. Still, the standards are voluntary and other guidelines have emerged from players including Green Business Certification Inc. and the Climate Bond Initiative, along with vetting by outside consultants like Sustainalytics. Companies also vary on how they gauge a project’s benefits, whether in reduced greenhouse gases, improved water quality or other measures.

Addressing those concerns may mean more compliance costs but there are still benefits to green bonds, Ashley Schulten, a director at BlackRock Inc., told the conference. The bonds can give borrowers access to a new class of investors that make environmental impacts a priority, she said. If confidence in the market grows, green bonds may also win tax breaks or other advantages from governments eager to promote clean energy, she said.

“We’re just asking you to say, if you’re calling something green, why is that green?” Schulten said.

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