The Transformative Power of Green Bonds: A Study of Green Capital Expenditure Implementation in the Green Bond Process

Abstract

The first green bond issued in 2007 has paved the way for a market that has grown exponentially and increased the awareness of climate change. Still, the market only makes up 1% of the total bond market and this suggests that green bonds may not be the gamechanging tool everyone has been waiting for. The fast growth has led to a market with challenges related to greenwashing, regulatory policies and measurement of environmental impacts. This thesis studies green bonds’ potential to raise the necessary capital to reach netzero emissions by 2050 and sheds a light on the use of a green capital expenditure to signal environmental commitments. Based on qualitative data and a requirement from the EU to disclose green economic activities, the thesis proposes a model for the incorporation of green capital expenditure into the green bond process for both issuers and investors. The model depicts a disconnect between the issuer and the investor in the short term but is believed to be of lesser importance in the long run. Throughout the thesis, it is found that green bonds are a great tool for companies in green sectors, while companies with high-emitting activities have difficulties in signaling credible commitment only through green bonds.