Finance

A Dirty Cousin of Green Bonds Starts to Attract Money and Skepticism

So-called transition bonds are intended to help issuers such as oil producers or coal miners move toward sustainability.

Members of the IBAMA forest fire brigade (named Prevfogo) fight burning in the Amazon area of rural settlement PDS Nova Fronteira, in the city of Novo Progresso, Para state, northern Brazil, September 2019. — Members of the IBAMA forest fire brigade (named Prevfogo) fight burning in the Amazon area of rural settlement PDS Nova Fronteira, in the city of Novo Progresso, Para state, northern Brazil, September 2019.
Photographer: Gustavo Basson/NurPhoto/Getty Images

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By Alice Gledhill

February 3, 2020 at 5:01 AM UTC

This article is for subscribers only.

This article is part of the February 5, 2020 issue of Markets.

Green bond investors, celebrating a landmark step toward establishing market standards, are starting to worry that the next big thing in sustainable finance could undermine those efforts.

So-called transition bonds are designed to help issuers in dirty industries, such as oil production and coal mining, finance their shift to cleaner ways of doing business. The risk is that the bonds’ somewhat fuzzy criteria may allow companies to get funds for projects with few environmental benefits—exactly the sort of thing that planned European Union guidelines are designed to prevent in the $600 billion-plus green-bond market.