Analysis of Success Factors, Benefits, and Challenges of Issuing Green Bonds in Lithuania

Abstract

The objective of this study is to establish understanding of the success factors in issuing green bonds including the corresponding benefits and challenges of their issuance in Lithuania. The research methodology is comprised of the three parts: (1) a literature review to examine the success factors, benefits, and challenges of issuing green bonds as identified by researchers in different countries; (2) use of the methodological potential of the analysed field to formulate an expert survey via the analytical hierarchy process method; (3) summary of the results of the survey and proposals for its further development. Findings suggest that the reputation, good credit rating, and the environmental, social, and governance score of the issuer are the key considerations in the success of green bonds issuance. On the benefits side, green bonds bear low investment risks with the ability to raise large investment amounts while providing quantifiable and measurable benefits. The challenges related to the issuance of green bonds include greenwashing, the questionable role of the green bond market in environmental protection, and insufficient financial and economic benefits of issuance. Practical implications of the study are based on the notion that findings can be applied as a reference point by potential issuers willing to issue green bonds, investors willing to invest in green bonds, and policy-makers willing to promote sustainable and green finance. An original aspect of this paper is its study focus on peculiarities of the issuance of green bonds in the region, in a smaller country which can serve as a reference point for considering potential issuance of green bonds.

The Role of Green Finance in Fostering the Sustainability of the Economy and Renewable Energy Supply: Recent Issues and Challenges

“…An additional tendency in the market is the speeding up of sovereign green bond issuances as governments wish to advance sustainable policies and fulfil their national sustainability agendas [49][50][51]. The success of a green bond issue is determined by the issuer's reputation, sufficiently good credit rating and environmental, social and governance performance [52].…”

“…Liaw [7], Orzechowski and Bombol [23], Sangiorgi and Schopohl [24], Bužinsk ė and Stankevičien ė [52], Gianfrate and Peri [53], Ferrer et al [66], Hadaś-Dyduch et al [67], Chopra and Mehta [68] Green bonds, being the largest single source of green finance, have had a significant impact on the renewable energy supply sector by providing a crucial source of financing for renewable energy projects [69][70][71]. They are designed to fund projects that have positive environmental and climate-related benefits, such as renewable energy infrastructure, energy efficiency initiatives, and other environmentally friendly projects.…”

“…As Table 3 shows, a vast majority of identified challenges deal with market-related factors, varying from the overall macroenvironment to the greenwashing risks (as studied by other researchers [52,65,77,[80][81][82][83][84]). There is evidence that issuing green bonds comprises a challenge in terms of costs of meeting corresponding requirements [82,85].…”

“…Regulatory flaw backs were also cited as a challenge to green bonds [73,86]. However, the size of the green bond market remains small compared to the challenges it is meant to address and to the overall traditional bond market [52,53,64,74,77].…”

“…•The issuer is obliged to prepare an annual report disclosing the usage of the acquired funds, environmental and other goals achieved through either qualitative or numerical data. However, the size of the green bond market remains small compared to the challenges it is meant to address and to the overall traditional bond market [52,53,64,74,77].…”