LCA for Green Bonds : Utilisation of Life Cycle Assessment in the context of green bond financed projects

Sammanfattning

Green bonds are a growing and popular financial product that aims to channel capital towards environmentally friendly projects and promote sustainable development. Despite some efforts to increase credibility, the lack of standardization, for example in the reporting of environmental impacts, is still a problem in the green bond market. Life Cycle Assessment (LCA) as a tool to address these problems has been investigated by only a few studies, giving reason to further investigate its utilisation in the context of green bond-financed projects. This study investigated the use of LCA as a suitable tool to assess the eligibility and environmental impacts of projects financed through green bonds. The method included a document analysis of three common green bond standards to investigate the current use of LCA and life cycle thinking (LCT) based methods in the context of green bonds. Additionally, four green bond-financed projects were analysed to determine whether LCA is a suitable tool to assess their eligibility and report their environmental impacts with regard to providing relevant results in relation to criteria from the European Green Bond Standard (EUGBS). Furthermore, methodological challenges that can occur when conducting an LCA on the projects were investigated. The results showed that LCA and LCT based methodologies are already in use by common green bond standards. However, they mainly occur in the criteria that determine whether a project is eligible or not to receive financing. Regarding the impact reporting no binding re-quirements exists for bond issuers to use LCA or LCT based methodologies. According to the results LCA is capable of reporting many relevant environmental impacts of the different pro-jects. However, different impacts were identified which are not covered by LCIA methods, which can limit the suitability of LCA as a method for impact reporting. This includes especially local impacts on the projects which are not covered by an LCA and would therefore be missed in the reporting. Various methodological challenges were identified when conducting an LCA on the projects, including allocation, system boundary, life cycle inventory, time span, data challenges, and challenges in the selection of functional units, which can impact LCA results and the comparison among projects. The results stress the necessity of future research on impact reporting and also for setting binding requirements for the impact reporting of green bonds.