© Micheile Henderson
Green bonds are a good indicator of whether a company will reduce its emissions, especially in carbon-intensive sectors, possibly spurred by stricter climate policies, a study from the Bank for International Settlements (BIS) has found.
The green bond market has expanded rapidly since the 2015 Paris Agreement, with issuers using the funds for projects that help benefit the environment or limit climate change. Annual issuance was US$700bn in 2024, which is a small amount of the US$2.5tn needed to transition to a green economy.
The BIS study analysed the green bond market and found that emissions of issuers fell by more than 10% four years after issuing a bond. Emissions per unit of company revenue dropped even more, falling 30%.
For scope 1 emissions, emission intensity decreased by 21% after the first year, with similar results for scope 2 and 3 emissions. Heavy emitters tend to reduce their greenhouse gas emissions the most, while other sectors did not reduce their emissions by as much.
“Given the skewness of carbon emissions, this is critical in terms of societal ‘net zero’ objectives,” the study states.
The researchers noted that issuance alone may not explain the drop but could be from a company’s broader commitment to reduce emissions, especially as companies tend to issue only a small amount of green bonds.
“Green bonds may thus merely be a signal of such broader initiatives,” the study states.
Still, while the market has increased six-fold since 2018, “green bonds are no panacea for funding the global energy transition”. The authors acknowledged concerns of greenwashing, with some asset managers seeking green labels simply for marketing purposes, while political changes could stigmatise green bonds.
Meanwhile, a stricter climate policy may incentivise firms to become green and increase the market for relevant bonds, the study found. An increase in policy stringency around the climate was associated with a 2.4% higher annual issuance. But not all policies had the same impact, with sectorial policies having a greater effect, while participation in international climate initiatives also seems to coincide with a larger issuance of green bonds.
This page was last updated March 14, 2025
Written by
Moriah Costa is the Editor-in-Chief of Green Central Banking and has over a decade of experience writing about banking and finance. She is an award-winning American journalist based in Paris and has written for major international publications, including Reuters, The Guardian, and S&P Global. Having grown up in water-stressed Arizona, she has always had a strong interest in bringing awareness to climate and environmental issues.
