Chart 7: A selection of ‘green bond’ structures  One concern sometimes expressed with this first generation of green bonds is that there are no binding requirements as to what constitutes a green project, and hence bonds may sometimes be labelled green on spurious grounds.33 There have been various attempts to address this issue, for instance the Climate Bonds Initiative’s Taxonomy and Certification Scheme34 and the European Union’s Green Bond Standard35, which set out more robust scientific criteria for identifying projects which genuinely help with climate change. The model also requires an issuer to have fairly sizeable green capital expenditures in order to issue a bond liquid enough to appeal to mainstream investors. 31  https://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/Green-Bonds-Principles-June-2018-270520.pdf BIS Quarterly Review, September 2020 33 Consistent with this, researchers have so far failed to identify a near-term relationship between green bond issuance and subsequent reductions in carbon emissions (https://www.bis.org/publ/qtrpdf/r_qt2009c.htm) – though there clearly are many possible reasons for this result, not all of which suggest greenwashing. 34 https://www.climatebonds.net/standard/taxonomy 35 https://ec.europa.eu/info/business‐economy‐euro/banking‐and‐finance/sustainable‐finance/eu‐green‐bond‐standard_en 32  13  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  13  An alternative approach is to link some element of the financial return on the bond to the achievement by the issuer of a particular climate sustainability outcome, without linking the bond to specific green expenditures.

28  See in particular the recently launched Task Force on Scaling Voluntary Carbon Markets: https://www.iif.com/tsvcm/MainPage/Publications/ID/4061/Private-Sector-Voluntary-Carbon-Markets-Taskforce-Established-to-Help-Meet-Climate-Goals 29 See discussion in the CFTC’s report on Managing Climate Risks in the U.S. Financial System: https://www.cftc.gov/PressRoom/PressReleases/8234-20 30 Fannie Mae is currently the world’s largest issuer of green MBS: https://multifamily.fanniemae.com/media/8616/display 12  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  12  Green bonds come in different flavours, illustrated in Chart 7. The dominant model is the ‘use of proceeds’ bond, designed to raise funds for specific earmarked investment projects that the issuer sees as climate-positive. This earmarking, coupled with regular reporting on project progress, provides debt investors with targeted transparency on the credentials of the projects their funds are supporting. The first such bond, issued in 2007 by the European Investment Bank, coupled the use of proceeds structure with a number of other innovative features, and other supranationals and government agencies helped develop the market further in subsequent years. But the concept only really took off after the agreement of the Green Bond Principles in 2014, which established market-wide standards of transparency, disclosure and reporting.31 There are now approaching $ trillion of such bonds across a wide range of issuers (Chart 8) – and, while that stock is so far just a tiny fraction of the $ trillion global corporate bond market,32 green issuance is growing several times more rapidly than conventional bonds. UK companies currently lie well down the issuance league table (Chart 9), and have primarily issued in euros (Chart 10).