Investments known as green bonds that are intended to slow climate change can finance the operation of tree plantations in ways that have few, if any, environmental benefits, according to a case study of Fibria, a Brazilian company that turns harvested trees into the wood pulp that ultimately becomes paper.
“The example of bonds by Fibria to finance business-as-usual industrial plantations raises the question of whether these self-labelled bonds and weak standards can credibly guarantee that money invested in these bonds will have a positive impact on the [environment] and the climate,” Merel van der Mark, who coordinates the Environmental Paper Network’s (EPN) pulp finance project, said in a statement.
The EPN is a group of some 140 NGOs with the goal of making the pulp and paper industry more sustainable. On May 14, EPN released a briefing that it says demonstrates that more than $700 million in green or climate bonds issued by Fibria went to maintaining and expanding plantations of eucalyptus trees.
The “green” benefits touted by the company from such investments were often exaggerated or misleading, and they sidestep the environmental challenges of growing and maintaining monoculture plantations, the report argues.
The report also suggests that Fibria used about half of the money raised from the sale of the green bonds to buy wood from plantations certified by the Forest Stewardship Council or the Programme for the Endorsement of Forest Certification to feed its pulp mills.
In this case, Fibria likely justified this outlay because the company saw buying certified instead of traditionally grown and harvested wood as more sustainable, the report says. However, EPN contends that the money from the green bonds should have only been used to cover the extra cost of the certified over non-certified wood, not the full cost of the wood.
At the root of these questions is the murky criteria on which these “green” investments rest, EPN says, arguing that these funds should support some improvement over “business as usual.”
“The lack of a robust system that can promote excellence and exclude disputable projects puts the whole concept of green bonds at risk,” the report states. “Projects with disputable assumptions, weak accounting and a lack of transparency represent a high reputational risk for the whole system, which could end green bonds’ role as a tool for ethical investment.”
In other words, labeling the products that result from such questionable schemes as green undermines attempts to use financing as a way to increase the sustainability of an industry that can be quite harmful to the environment.
“Green Bonds are an excellent opportunity to put together the growing demand for ethical investment for the huge environmental challenges the world is facing,” Wolfgang Kuhlmann, who wrote the briefing, said in the statement from EPN. “They can attract resources otherwise unavailable and finance the implementation of projects that contribute to a better environment and climate,” he added. “But this can only work if the green bonds can provide additional benefits, both financially and ecologically.”