ESG Debt Issued by Regional Governments in Spain:Financing Sustainable Development or Usual Public Expenditure?

Abstract

Sustainable debt bond is an emerging instrument aiming at providing companies and governments with extra resources for financing social and environmental policies and attempting to make progress on the Sustainable Development Goals. Regional governments in Spain have issued sustainable bonds in recent years to finance different spending programmes. However, these relatively new debt instruments present controversial issues: debt cost, funded projects, financial green & socialwashing, discouraging the use of other key fiscal instruments for sustainable development. This paper develops a thorough analysis of how these sovereign sustainable bonds are used by the public sector. This study examines five regional governments in Spain that have issued bonds with ESG criteria (green, social and sustainable [GSS] bond), seeking to use their resources more responsibly and to promote a more sustainable and inclusive economy. The aim is to show what motivates different governments to issue this type of debt. That is, a genuine awareness of sustainable development where ESG bonds offer significant advantages over conventional debt, or whether, on the contrary, the strategy responds to financial criteria. The results reveal significant limitations of this new type of debt as a key instrument for financing and accelerating sustainable development. In fact, ESG debt can encourage financial green & socialwashing and discourage the use of key fiscal instruments for sustainable development.