Like environmentally minded consumers, however, investors need to check whether the products they are buying meet their ethical standards rather than just being packaged attractively; accusations of "greenwashing" abound.
The latest deal to raise eyebrows is Europe's first sustainable junk bond, from the main Greek utility the Public Power Corporation, which, while using renewable sources such as wind turbines, also invests in fossil fuels. Those who want to make sure their pension funds are entirely low-carbon might be disappointed.
Yet the deal should not be casually dismissed. The debt will not be classified as a "green bond", in which the proceeds are generally earmarked for green purposes.
Such instruments face the problem that money is fungible: a lower cost of finance for green activities means the company may find it easier to fund its brown activities, if it does both — like many of the governments and banks that have sold green bonds.
That may appeal to investors who want to make sure they are not directly profiting from fossil fuels themselves but means green bonds may play less of a role in getting global emissions down than other potential bondholders might hope.
Instead, as a "sustainability bond", the PPC will have to pay a higher interest rate to bondholders if it fails to hit emissions targets. That sort of corporate incentive provides a rejoinder to the idea that green finance is more about feeling good than doing good: the company has a reason beyond reputational damage for reducing greenhouse gases. It also means that investors "win" either way — earning more in interest, or helping to lower emissions.
The problem of ensuring companies do what their investors want is widespread: shareholders have always worried that management have different interests, and try to align them through compensation packages.
For standard bondholders, auditors and rating agencies have monitored debtors and made sure they are holding up their side of the bargain, enforced through covenants.
Taxonomies — classifying investments as green, brown or olive based on how environmentally friendly they are — and changes to reporting requirements can help, but investors need more tools.
The devil will always be in the details. The targets the Greek utility company has set for itself are no different from its existing sustainability plans; the marginal impact of this "impact investment" may not be large.
Other analysts have complained that the penalty it faces for missing these targets — a 50 basis point increase in yields — is far too low.
Capitalism's restless innovation when it comes to electric cars or plant-based food has helped consumers to enjoy the same standard of goods, or something close, while cutting their carbon footprint.
But canny marketers have also used environmentalism to relabel many, at best, neutral products as world-saving. Environmentally friendly finance is shaping up in a similar vein: investors will find that new product badging cannot replace the hard work of scrutinising exactly what is being offered. Despite the promises, it is never easy being green.
© Financial Times
