Green bonds are considered one of the most important innovations in sustainable finance. However, there is a lack of conceptual and empirical understanding of the role of green bonds in corporate transition to carbon neutrality.

This study develops and tests a conceptual framework that links green bonds to climate targets in the context of corporate transition risk management and polycentric climate governance. It is based on an analysis of the twenty largest European green bond issuers in 2018. It was found that in most cases there is a disconnect between issuers’ climate targets and their green bond frameworks; and several shortcomings in issuers’ post-issuance reporting. The results suggest that there is little pressure for green bond issuers to use their proceeds to achieve ambitious science-based targets. Findings highlight the need for policy action to reduce the risk of greenwashing and to situate the green bond market within planetary boundaries.