Compliance monitoring and enforcement with voluntary standards: the case for external reviews on green bonds

Green bonds are debt instruments whose proceeds are earmarked to finance environmental-friendly ‘green projects’. To date, these are the most common securities explicitly supporting the transition to a more sustainable and climate-resilient global economy. Nevertheless, at the international level, green bonds are governed solely by voluntary standards set by private organizations and that cannot be directly enforced. Even though the practice of requesting third-party compliance assessments ̶ named external reviews ̶ has been established among issuers, the problem of greenwashing, which is the misuse of green bond proceeds, firmly persists. The paper investigates how such external reviews help to monitor and enforce compliance with green bond voluntary standards, whereas public enforcement lacks. First, it employs the analytical construct of Transnational Private Regulation to explore the regulatory dynamics underlying the international green bond market. Secondly, it reviews, analyses, and compares all different forms of external reviews, such as Certifications, Second-Party Opinions, Third-Party Assurances, and Ratings. Lastly, it investigates the regulatory role that external reviews play in monitoring and enforcing compliance within the international market practice and addresses the relevant issues. The paper may contribute to better understand the phenomenon of ‘compliance’ in private transnational rulemaking and the role such ‘compliance assessments’ play in the enforcement of voluntary regulations.