Posted: 17 Feb. 2022 8 min. read

Green Bonds – How can robust product governance assist underwriters to manage the risk of Greenwashing?

A global issuance of green, social and sustainability bonds collectively hit a record of $859 billion in 20211, compared to the $534 billion issued in 2020, underwriters can support the transition to a more sustainable economy and to meeting net zero targets by ensuring that finance is channelled to green investments and activities. Strong product governance frameworks remain critical to the identification and management of emerging conduct risks in this rapidly developing market.

What are the potential conduct risks to underwriters and arrangers in the green bond market?

There are several inherent conduct risks that exist in the green bond market that underwriters need to consider. These include, but are not limited to:

  • A lack of an agreed definition of what constitutes “green”: provides scope for very broad interpretations by issuers and investors alike; for example, the interpretation as to whether Nuclear energy and natural gas should be considered as “green”2, despite not being referenced in the Climate Bond Standards- 'Eligibility of Projects & Assets'3.
  • Customer communications: Marketing documents, such as green bond frameworks, may differ in language and intent compared to accompanying contractually binding bond prospectus documents, creating a potential for investors to be ill-informed or be indirectly misled.
  • Potential perceived or actual conflicts of interest: for example, relating to ‘second party opinions’, that are commissioned and paid for by the issuer.
  • Inconsistent approach in Assurance requirements: creates the risk that bond proceeds are not managed as described, and documented internal controls are not implemented.

Potential for conduct risk to arise across the green bond lifecycle

Activities that occur throughout the lifecycle of green bonds may provide incentives to market participants that could precipitate an increase in conduct risk in green bond issuance compared to non-green bonds. As well as thinking about the conduct risks that specifically apply to market participants, underwriters need to think holistically about the conduct risks in the market due to their central role in the issuance process.

Issuer: Issuing bonds labelled as green may allow issuers to access new investment mandates, such as dedicated ESG investors, therefore widening their investor pool. This creates a potential incentive for the issuer to overstate the green credentials of the proposed use of bond proceeds. Issuers may have reputational reasons for wishing to issue bonds labelled as green, for example, as part of a wider corporate sustainability strategy. In some cases, issuers may reduce their financing or re-financing costs by issuing green bonds  due to the “greenium”, i.e., the interest savings on offer for  bonds classified as green may be up to 25 basis points4. One or more of these market conditions may drive increased conduct risk through creating incentives to achieve a green bond market classification.

Underwriters: The green bond market is rapidly growing and part of the wider market trend for ESG investing that dominates the financial press. This provides an opportunity to gain and increase market share in a new market. To keep up with market demand there is a potential incentive to pursue an accelerated product launch without thorough considerations of all risks. The robustness and maturity of existing product governance structures may determine how well issuers mange these risks. In the EU, from 22 November 2022, a Delegated Directive5 which integrates sustainability factors into MiFID II product governance obligations for manufacturers and distributers will apply.

Data providers/second party opinions:  The market for supporting documentation regarding green bond classification is varied in approach. Whilst they are branded as second party opinions as a collective, the methodology or output is not typically conducted under an internationally formally recognised standard (e.g., an International Standard for Assurance Engagements) . Whilst there have been efforts to formalise approaches on green bonds such as the proposed voluntary EU Green Bond Standard and proposed European green bonds egulation by the EU to register and supervise6 companies that act as external providers, the regulatory and assurance framework supporting the use of second party opinions in the market remains comparatively informal..

Institutional Investors: may face pressure to invest in green products to meet the changing demands of the underlying investors. In a market where demand is exceeding supply, and with the pressure to meet that demand, there is a risk that the length of time spent on due diligence by investors may not be sufficient to fully consider the relevant risks.

What potential implications should be considered in underwriting green bonds?

Through the product governance process, underwriters that issue green should consider the following implications when mitigating potential conduct risks:

Regulatory:  There are requirements as set out in COBS 4.2., PROD 3.2.2, and PRR 2.1.2  to ensure that information provided to investors during the marketing of a security (e.g., bond issuance) on products are clear and not misleading. Lead underwriters will likely be considered both a manufacturer and a distributer for UK MiFID / MiFID purposes when marketing to both EEA and Non-EEA clients. Other syndicate banks that market bonds are likely to be considered a distributor under MiFID.

Reputational: Notably, the consideration as to whether “greenwashed” bonds could form part of retail investment portfolios as component parts of green funds that retail consumers invest in. Lead underwriters, in their roles as green bond manufacturers, should also consider whether they are covered by the newly proposed Consumer Duty7 requirements. If retail investors are found to have been consciously or unconsciously misled on the true nature of their investments, it is likely that the contagion effect will lead to a negative reputational impact for each of the market participants stated above.

Undermining market confidence: Greenwashing can lead to investors being sceptical of green bonds and reduce the availability of financing for green projects. Underwriters need to consider that the strengths or weaknesses in their product governance processes can have a direct impact on market confidence.

What underwriters can do to reduce the risk of issuing “greenwashed” bonds?

There are some immediate steps that underwriters can take to reduce the risks of “greenwashed” bonds being issued to the market.  

Product governance arrangements: Underwriters should ensure they have robust product governance arrangements over the green bond area of their debt capital markets business line. Underwriters need to ensure they have arrangements that ensure that new issuances are agreed and signed off by committees with sufficient competence, experience, and seniority.  There should also be an opportunity for challenge from key stakeholders including second line functions.

Second and third line controls: Underwriters should ensure they develop detailed second line monitoring controls and perform compliance reviews on their green bond business to reduce the risk of “greenwashed bonds” being issued. Underwriters should also engage their internal audit functions to review their green bond business periodically. Underwriters should ensure they have sufficient expertise, either internally or with external support, to ensure that the second and third line controls operate effectively.

Assurance of performance: Underwriters, in their role of MiFID product manufacturers with obligations to monitor the performance of green bonds, should work with the issuers to ensure that bond performance, especially monitoring that the funds are used for green purposes, is reviewed under a formal assurance standard such as ISAE 3000.


The size and scale of green bond issuance is growing year on year and this shows no sign of slowing down. The mobilisation of finance towards green investments and projects will be essential in the transition to a sustainable economy and underwriters of green bonds have an important role to play. The FCA has stated in its Climate Change Adaptation Report8 where it sees risks in the green bond market and will use its role as a facilitator of sustainability in financial markets to drive change. Underwriters, due to their central role in the green bond issuance process, need to think holistically about the conduct risks in the green bond market as well as their own specific conduct risks. Underwriters should ensure they strike the right balance between conducting the appropriate level of due diligence and the commercial opportunities from investor demand. Robust product governance arrangements and high-quality independent assurance are key tools for managing conduct risk in the green bond market. For the market to function effectively in the long term, it is essential that the maturity and implementation of the product governance and assurance keeps pace with the size and scale of the green bond market.



  1. Global issuance of sustainable bonds hits record in 2021 | Reuters
  3. climate-bonds-standard-v3-20191210.pdf ( - Part C: Eligibility of Projects & Assets
  4. Is The Green Bond Premium Here To Stay? | Seeking Alpha
  6. The EU puts its stamp on a new European green bond framework
  7. CP21/13: A new Consumer Duty (

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Key Contacts

Stephen Farrell

Stephen Farrell

Head of ESG Assurance

Steve is the Head of ESG Assurance in our Audit and Assurance practice for our UK and North and South Europe partnership. Steve is a chartered accountant and has extensive experience in audit, internal audit and regulatory implementation programs. He has worked with a wide range of companies across all major industries, having developed a thorough technical understanding of products and control practices for non-financial risk management. Steve has significant experience in partnering engagements for the provision of ISAE 3000 / 3410 independent assurance over sustainability information and in relation to the sufficiency of design and operating effectiveness of processes and controls to report on non-financial information.

Morgan Jones

Morgan Jones


Morgan is a director in our ESG Audit and Assurance Group. He has directed multiple ISAE 3000 assurance engagements for a variety of listed companies and has provided climate change risk subject matter expertise for FTSE 100 audits and recent IPOs. Morgan has extensive knowledge of ESG, climate risk, TCFD, green bonds and greenhouse gas measurement. He has overseen hundreds of assurance engagements of sustainability data and is a technical expert in sustainability reporting and green finance.

James Staight

James Staight


James oversees regulatory assurance work for Banking and Capital Markets clients in the UK across a variety of topics including conduct risk, climate risk, greenwashing, non-financial risk frameworks and assurance methodologies.

Key contacts

Rosalind Fergusson

Rosalind Fergusson

Senior Manager

Rosalind is a Senior Manager in Deloitte’s EMEA Centre for Regulatory Strategy, specialising in sustainable finance regulation. Before joining Deloitte in January 2012, she worked in financial services policy at HM Treasury and as an Associate Portfolio Manager at an asset manager.

James Murphy

James Murphy

Senior Manager

James is a Senior Manager in Deloitte’s Banking and Capital Markets Regulatory Advisory team, based in London. James has sixteen years experience in the financial services industry. James spent five years at the FCA as a Lead Associate in Wholesale Banking Supervision supervising a portfolio of European, Middle Eastern and African Banks. James spent fourteen months as a Senior Supervisor at the Central Bank of Ireland (CBI) in the Wholesale Market Conduct Supervision team supervising banks and principle trading firms. James’ regulatory experience includes Conduct Risk, MiFID II, Market Abuse, Corporate Governance and Financial Crime.