Financial greenwashing: the dark links between green bonds and corruption.

Sustainable finance is characterized by the integration of “ESG criteria” into the financial decision-making process, and finds concrete expression in instruments such as green bonds.
These instruments are specifically designed to raise capital for projects with environmental benefits, enabling funds to be channeled towards initiatives aimed at combating climate change, promoting environmental sustainability and improving environmental management.

However, behind the façade of green investment lies a growing concern: that of greenwashing.

What are green bonds?

Green bonds can be issued by public or private entities. They are fixed-income securities which, unlike traditional bonds, are explicitly presented to investors as supporting sustainable environmental projects.

Although there is no universal definition, green bonds are distinguished by their commitment to allocate the funds raised exclusively to sustainable initiatives, such as renewable energies, biodiversity conservation and energy efficiency projects. Investors are attracted to green bonds by their multiple advantages.

Firstly, they enable portfolios to be diversified by integrating assets linked to sustainable development. Secondly, they offer investors the opportunity to make an active contribution to environmental and social causes, combining financial return with "ethical commitment". What's more, these bonds can enhance the reputation of issuers.

What is the regulatory framework for green bonds?

There are various international guidelines, such as the Green Bond Principles (GBP) of the ICMA (International Capital Market Association), the Climate Bonds Standards (CBS) of the Climate Bonds Initiatives (CBI), and more recently at European level, the EuGB, which is based on the European Taxonomy.

The Green Bond Principles (GBP)

The GBPs, established by ICMA in 2014 and updated in June 2021, aim to guide green bond issuers in order to improve transparency and credibility. These principles address the lack of harmonization by establishing common standards, focusing on four core principles: use of funds, project evaluation and selection processes, fund management and communication. GBPs require that funds be used exclusively for environmentally beneficial projects, and encourage transparent communication of project details.

The management of funds, including monitoring and allocation during the issue period, is also emphasized, with a requirement for regular reporting on the use of funds. The principles also encourage third-party verification to ensure compliance with established standards.

Although adherence to the GBPs is voluntary, it promotes transparency, accountability and credibility for issuers, giving investors confidence that funds are being managed wisely.
The success of the GBP therefore depends on the commitment of issuers and the confidence of investors in the information provided.

The Climate Bonds Standards (CBS)

Created in 2011, the CBI introduced the CBS with the aim of raising capital on a global scale for projects with a positive impact on the climate.

Distinct from the GBPs, the CBS takes a more robust and rigorous approach, defining clear criteria for asset/project eligibility, revenue management and non-financial disclosure. CBS and GBP are complementary, with CBS-compliant green bonds also meeting GBP standards. CBS requirements are divided into pre- and post-issuance criteria, ensuring transparency and rigorous impact assessment. The post-issuance phase includes details such as fund allocation, environmental impact assessments and third-party verification, a distinctive feature compared to the GBP's suggestion of external auditors.

Issuers that meet all the criteria can opt for CBI certification, offering investors quality assurance about the contribution of CBS-certified bonds to a low-carbon, climate-resilient economic recovery. In addition, the CBI introduced its own taxonomy of climate bonds in 2013, covering a diverse range of sectors eligible for certification once the specified criteria have been met.

What is the regulatory framework at EU level?

The EuGB aims to improve the effectiveness of green bonds by aligning them with the broader objectives of the EU Green Deal and the EU Taxonomy. Its main objectives are to guarantee transparency (like its counterparts GBP and CBS) and to increase the size and credibility of the market through an "EU green bond" label.

To qualify to label their EuGB green bonds, issuers must:

• 1

  Explicitly affirm their alignment with the EuGB: issuing entities must provide a document specifying that the bonds issued comply with the EuGB and are designated as "EuGB". Prior to issue, this document will be accompanied by an information sheet explaining how the EuGB will contribute to the issuer's overall environmental strategy. This fact sheet will then be reviewed by an external entity prior to issue, to validate the veracity of the statements.

• 2

  Ensure that the funds will be used to finance or refinance green projects: the allocation of net funds form these EuGBs must be carried out solely in accordance with the criteria of the European Taxonomy

• 3

  Allow an accredited external auditor to verigy alignment with the EuGB.Understanding green bonds requires an in-depth exploration of their fundamental characteristics, their benefits for investors, and the standards that govern their issuance.

What is Greenwashing ?

Greenwashing refers to the fraudulent use of green bonds linked to sustainable development to conceal activities that are not in line with sustainability principles.


The growth of green bonds creates an attractive opportunity for malicious actors seeking to conceal illicit capital.
The risks associated with using green bonds to finance or re-finance projects that do not have a positive impact on the environment, as well as the risk of corruption.

A concrete but little-known example of this process is the case of the Jirau dam in Brazil.

About the Jirau Dam case

In addition to the greenwashing of green bonds, the construction of the Jirau dam was marred by corruption. In March 2007, the Ibama refused a licence for two dams because of shortcomings in the impact studies. Lula then split the Ibama, but the person who had signed the licence was appointed to head it, approving licences for the Santo Antonio dam in 2008 and the Jirau dam in 2009, despite the objections.

Legal appeals against these irregularities have gone unheeded. Former president Dilma Rousseff was accused of favouring the Tractebel-Suez consortium in the 2008 tender for the construction of the Jirau hydroelectric plant, when she was head of the civil division of Lula's administration.

Patriarch Emílio Odebrecht , head of the country's largest construction company, said he had attended a meeting with then-President Lula to discuss the matter in 2008. Lula is said to have promised to try to reverse the outcome of the tender before withdrawing. It is also worth noting that in 2010, Rousseff's campaign committee reportedly received R$1 million (equivalent to half a million euros at the time), of the Jirau dam via the Green Bonds issued by GDF Suez, this raises questions about possible collusion. In this sense, increased monitoring of Green Bonds is necessary to avoid such abuses.

In conclusion, the issues of climate change, green finance and transparency in infrastructure projects remain crucial in the current context.

The example of the Jirau dam illustrates the challenges faced by so-called “green initiatives”, which are confronted with issues of corruption and lack of oversight.


In this sense, it is only a rigorous, transparent and extensive approach to monitoring the political implications that can ensure public confidence and the credibility of initiatives promising environmental sustainability.