While the market for green bonds (debt incurred to pay for environmental initiatives, generally) has grown by leaps and bounds in just a short time, investors are increasingly skeptical of the eco-friendly claims for these products, Bloomberg reported.

Green bonds and loans, funding projects ranging from environmental remediation to clean energy to habitat conservation, are surging, with sales having spiked by 78 percent between 2018 and 2019. Last year, the financial products—encompassing sustainable debt instruments such as green bonds, green loans, sustainability bonds and social bonds—were a $465 billion market. Today, according to Bloomberg, there is $2 trillion of outstanding environmental, social and governance (ESG)-related debt. But whether these bonds are as environmentally conscious as they say can be a matter of contention.

For instance, one fund manager blacklisted Indonesia's ESG bonds due to deforestation risks; another dropped Poland's green bonds for not having a clear enough climate plan; another decided not to buy green bonds devoted to making renovations at a Dutch airport to be more eco-friendly because air travel unto itself is bad for the environment. James Rich, a senior portfolio manager at Aegon Asset Management, estimates that about a third of bonds designated as eco-conscious contain elements of greenwashing (companies overstating their environmental credentials), up from as much as 20 percent a couple of years ago.

Greenwashing is a concern that has long plagued the ESG arena, with certain companies issuing reports less for informing stakeholders about accountability and growth, and more for managing public perceptions. Part of the problem is the galaxy of various frameworks and standards, paired with the lack of mandates in many jurisdictions. Imagine if, when a company put together a financial report, there was no mandate to use Financial Accoutning Standards Board (FASB) standards or to get an audit determining whether the information aligns with them. Right now, a similar situation is happening in the ESG space.

There does, however, seem to be some movement in this area. The Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC) merged into the new Value Reporting Foundation, with the need to consolidate the field cited as one of the reasons behind the idea. Meanwhile, the International Federation of Accountants, working with the IIRC, recently embarked on a joint initiative to raise awareness and promote quality in the field of integrated reporting assurance engagements.