The use of green bonds in financing energy retrofits in buildings

Energy retrofits are an important tool needed to achieve decarbonization in the building sector, but there are currently many financial barriers to their implementation. Green bonds could be an effective way to finance retrofit projects by providing sizable upfront capital with long payback periods. However, there is a lack of research on green bonds and how they are used to finance retrofit projects. Therefore, this research employs a descriptive design research approach to examine the use of proceeds documentation from green bond issuances and evaluates how green bonds are being used to finance energy retrofits in buildings. The results demonstrate that most green bond issuers that publicized their use of proceeds documents allocated proceeds to the "Green Buildings" or "Energy Efficiency" categories under the Green Bond Principles. Of these issuers, fewer allocated proceeds to energy retrofit projects. Fewer still set minimum performance standards for retrofits, provided specifics about actions that qualified as retrofits, or defined targeted building typologies. Also, most of the minimum standards and retrofit activities specified by issuers were insufficient to provide Paris Agreementaligned emissions reductions in the building sector. Overall, although transparent use of proceeds documentation has become an international standard, it appears that transparency has not been enough to spur green bond issuers to target deep decarbonization through green bond-financed retrofits. These findings and the current dearth of knowledge point to a need for further research on this topic and a potential need for the adjustment of sustainable debt instruments to spur decarbonization through retrofit.