Hastings Business Law Journal


Eyolf Aaro


This paper exposes some prominent issues that arise when banks label their contingent convertible bonds (CoCos) as “green,” and proposes a mechanism to improve green CoCos as climate change mitigation instruments. The green label is weakly protected due to regulatory requirements for capital instruments issued by banks. Current and proposed green bond frameworks, when applied to standard green bonds are insufficient in ensuring real environmental impacts from the bonds, are not prepared for the novelty of labeling CoCos as green. The result is a financial instrument through which issuing banks unsuccessfully try to achieve both regulatory and environmental aims. The paper also demonstrates that the legality of green CoCos under eligibility criteria for capital instruments is questionable. Thus, this paper argues that they are unsuitable as climate change tools unless regulatory changes are made. The paper explores ringfencing of banks’ green assets into separate legal entities as one such possible change. Ring-fencing, the paper argues, would increase the effect of green CoCos as a climate change tool and make them more than just another form of greenwashing.