Companies should be assigned credit score-style "green ratings" to push them to cut CO2 emissions, the central bank to the world's central banks, the Bank for International Settlements, has said.
Research in the BIS's quarterly report on Monday showed 'green bonds' were not having a lasting impact on firms' "carbon intensities" as they often tended to rebound after an initial dip.
Therefore, a rating system that focused on a company's overall CO2 efficiency that could be used by investors and policymakers to compare firms would provide a better incentive.
"Overall, there is no strong evidence that green bond issuance is associated with any reduction in carbon intensities over time at the firm level," the BIS researchers that carried out the study of thousands of firms wrote.
"Rewarding a reduction in carbon intensity (with a rating system) is an effective way to reduce firm-level carbon emissions, without incentivising firms to reduce economic activity or split up operations."
Carbon reporting currently distinguishes between three different types of emissions, also known as 'scopes'.
Scope 1 covers emissions from owned or controlled resources of a firm. Scope 2 encompasses indirect emissions from the generation of purchased energy, eg. electricity, while scope 3 includes all other indirect emissions such as input products, employee travel and distribution systems.
Governments around the world are looking at how to harness the power of financial markets in the fight against climate change.
The European Union is finalising a key part of the bloc's Sustainable Finance Taxonomy, which will define which investments can be considered green, while central banks are also looking at bumping up greener firms and penalising polluters in asset purchase programmes or lending operations.
Assuming global investors now have a preference for greener business models, the BIS study said firms that climbed the new green rating ladder would most likely see lower funding costs.
It proposed a 10-bucket rating 'grid' including five buckets just for the 10% of firms with the highest carbon intensity. The labels would start from GGGGG for the greenest firms to PPPPP for the worst polluters.
"The incentives of firms should be aligned with climate goals," the report said.
(Reporting by Marc Jones; Editing by Toby Chopra)
