Shades of green: life cycle assessment of renewable energy projects financed through green bonds

Abstract

Green bonds have emerged as a key instrument to fund projects contributing to climate change mitigation or environmental protection. However, a consistent, robust and comparable standard for the estimation of the environmental impacts of green bonds is lacking, hampering growth in sustainable finance. As encouraged by second-party opinion reports, the use of life cycle assessment (LCA) allows for the complete environmental evaluation of projects over their life cycle. Here we estimate the LCA-based impacts along several environmental metrics of a set of green bonds for renewable power plants issued by the European Investment Bank from 2015–2018. Life cycle avoided greenhouse gas (GHG) emissions varied by a factor of 12 from 29 to 359 t CO _2 eq./M€ invested—information that is not available to investors at the outset, indicating that funds are unlikely to be allocated efficiently. Furthermore, linking environmental impact indicators to the Sustainable Development Goals unveils significant trade-offs. Bonds may perform well on water use and emissions, while having a negative impact on waste and land use. Conducting LCA of green bonds comes at a cost of additional methodological challenges and increased data needs compared with current reporting practices. However, the ready infrastructure of LCA databases and methodologies can provide the necessary tools to meet future reporting requirements as the EU taxonomy framework and standardization of impact reporting evolve.

Keywords

• green bonds
• sustainable finance
• greenhouse gas emissions
• sustainable development goals