Financing urban developments through green bonds doesn’t necessarily guarantee their ecological value, nor does it account for their social ramifications.
Since the financial crisis of 2008, policy-makers and planners have promoted green growth agendas as a progressive strategy for economic growth. Cities like Vancouver, Philadelphia, Bogotà, Milan, Accra and Seoul, have touted new green developments as markers of livability to attract wealthy residents and further investment. But a deeper look at one of the instruments being used to promote these developments—green bonds, in particular—reveals how little we know about their real environmental and social impacts.
In 2013, Gothenburg, Sweden became the first municipality in the world to issue a green bond in an attempt to attract investments for projects aimed at reducing the effects of climate change, such as energy efficient buildings, new green space, and water management. But despite this apparent milestone in green financing within urban sustainability planning, much uncertainty remains related to the actual environmental value and contributions of these bonds and the implications of green bond financing for social equity, inclusion, and justice.
Signs promoting Gothenburg’s vision of green urban development. Photo by Sara Ullström
A tenuous assessment of “green”
First, verifying and assessing the greenness of these projects have proved difficult. Green bonds are often framed as the ultimate win-win solution and success story, but the reality is much more complex. While enabling issuers to carry out green innovation projects, investors are given the opportunity to steer some of their capital into responsible investments that will earn them a green label. Because green bonds usually generate similar returns as conventional bonds, investors do not have to pay for showing the world that they are contributing to a sustainable future. Issuers, however, are required to account and report for the impacts of their projects.This process has shown to be imbalanced and uncertain at best, and has increasingly raised concerns over greenwashing and the actual ecological value of many of these projects. The lack of universally agreed standards makes it difficult to assess and compare impacts, resulting in an unharmonized process where different issuers employ different ways of presenting their environmental contributions.
Second, there is the question of additionality. Does green bond financed projects contribute to creating additional positive climate impacts? If not, what value do the projects bring? In Gothenburg, additionality is not a requirement. Rather, green bonds are used as a way to finance or refinance projects that most likely would have been financed anyway, such as the construction of new energy efficient apartment buildings or the planting of new trees.
Tree-planting is one of the projects in Gothenburg’s green bond portfolio aimed at promoting a green cityscape and improving urban air quality and biodiversity. Photo by Sara Ullström
Green labels and branding
Hence, the use of green bonds does not mean that the city is investing more money in green innovation. It is simply a way to label some of its financial resources as green. But why make all the extra effort that the green label entails, if it does not enable additional impacts? The answer is that the green label is a very effective branding instrument, one which Gothenburg has used to position itself as a sustainable, green city at the forefront of innovative urban transition. The green stamp of approval lends it a competitive edge that makes all the extra effort worthwhile.
Ultimately, Gothenburg’s green bond initiative is driven by a smart growth agenda, underpinned by what we at BCNUEJ refer to as the Smart Sustainable Resilient City planning orthodoxy, that prioritizes economic and ecological benefits over social ones. Often, eco-oriented sustainability projects in cities are assumed to benefit all urban residents equally, failing to address questions about for whom the green, sustainable city is created.
What about social impact?
Take, for instance, the case of energy efficient apartments mentioned above. Between 2013 and 2017 the City of Gothenburg invested 55% of its ‘green money’ in new low-energy buildings under the sustainable housing project sector. But who will afford to live in these green, efficient buildings? While their impacts are measured in terms of energy savings and reduced CO2-emissions, social considerations are – as in most green growth discourses – entirely absent. The strong focus on co-existence between economic growth and eco-sustainability obscures questions of justice and affordability, and social impacts are at best briefly mentioned as additional benefits. Undesirable social impacts on the other hand, such as risks of gentrification or marginalisation of vulnerable groups, are not addressed.
There is no doubt that cities urgently must act on climate change, but we must make sure that it does not lead to unjust outcomes. It is time to move beyond green labels, innovative financing, and sustainability branding to articulate and evaluate the conditions – including financing frameworks and tools – under which green cities can also be just, inclusive and sustainable for all.
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Top photo: A render of new energy efficient rental apartments constructed by the public housing company Framtiden Byggutveckling. Between 2013 and 2017 they have received green bond money of approximately €130 million to create a new portfolio of low-energy buildings. Render: Fojab-arkitekter / Kreativ fotografering AB
