Green label or green action? Making climate finance easier to check

Today is Finance and Trade Day at COP31 in Antalya. Most of the talk will be about scaling up climate finance. An equally important question gets less attention. When money carries a green label, how can anyone check that it is doing green work?

My research looks at two of the most widely used signals in sustainable finance, ESG ratings and green bonds. Both are useful. Both also show that a label is a claim, not proof.

An ESG rating turns many different indicators into a single letter or number, and each provider makes its own choices about what to include and how much each part counts. Unsurprisingly, providers often disagree. A widely cited study of six major rating agencies found that their ratings of the same companies agree only moderately, with correlations between 0.38 and 0.71. By comparison, credit ratings from the main agencies usually correlate at above 0.9. Many ESG ratings are also designed to measure how sustainability risks might affect a company’s finances, rather than how the company affects the climate. In my own research, a recurring lesson is that the headline number often tells you less than what sits underneath it.

Green bonds raise a similar question. The money they raise is meant to fund green projects, and the widely used Green Bond Principles ask issuers to explain how projects are chosen and to report what the money achieves. But these principles are voluntary, and independent review is recommended rather than required. As a result, the strength of the green label varies from bond to bond. If investors are willing to back a label, the label should be checkable.

Three simple checks

So how can investors and companies tell real green action apart from a green label? Three simple checks help.

First, look for numbers, not adjectives. Real action shows up in emissions data over several years, in spending plans and in clear interim targets. Vague promises are not enough on their own.

Second, follow the money. For a green bond, ask where the money actually went and whether the issuer reports the results. Independent review and regular impact reporting are good signs.

Third, compare more than one source. If two ratings or data providers disagree sharply about a company, that gap is useful information in itself. It is a reason to look closer, not a reason to pick the higher score.

The role of COP31

COP31 can make these checks easier in four ways. First, it can back a common baseline for climate disclosure. The ISSB (International Sustainability Standards Board) published global climate disclosure standards in 2023, and more countries are adopting them. Second, it can help national green definitions work together across borders. The EU and China showed this is possible with their Common Ground Taxonomy in 2021. Third, it can encourage oversight of the raters themselves. Since July 2026, ESG rating providers serving the EU market have needed approval from the EU’s markets regulator and must be more open about their methods. Fourth, it can improve the public tracking of climate finance, so that progress towards the COP29 goal of at least 300 billion US dollars a year for developing countries by 2035 can be measured.

Climate finance runs on trust, and trust needs data that people can check. A green label is a promise. COP31 can help make sure the promise can be tested.

Bowen Li is a PhD researcher at Leeds University Business School and a Priestley Climate Scholar. He is part of the University of Leeds online delegation to COP31.