Feature | ESG
How green is your bond?
The green bond market is evolving into new areas, but, as Mark Dunne asks, are investors getting what they are paying for.
Green bonds come in many shades, even blue. They are also available in different fla- vours, such as sustainable, climate, social and transition. The green finance market has evolved into specialist areas to meet demand with green bond issuance expected to top $200bn next year, if not before. But is a fear of greenwashing putting some investors off using such products to build sustainable debt portfolios? The first half of the year saw $117.8bn (£963bn) of green bond issued, a 48% improvement on the same period of 2018, yet the market has a credibility problem in some quarters.
Indeed, the market is too small. The UN
forecast that $90trn needs to be invested to achieve its Sustainable Development Goals, a blueprint that it hopes will create a sus- tainable future. Green bonds are a small part of the $100trn that the global bond market was worth in 2018 with the World Bank believing that there is only around $500bn outstanding in such bonds, or less than 1% of the total bond market. Green bonds finance projects that are designed to help protect our environment. These could typically include building solar power parks and wind farms, developing cars that produce less greenhouse gas emissions or purifying water. But this is
part of the problem with green bonds. They only serve one of the three pillars of the environmental, social and governance (ESG) universe. Yet the market has come a long way since the European Investment Bank issued the inaugural green bond back in 2007. Before then, investors had few options in the fixed income space to fund the fight against cli- mate change and had to assess the ESG- merits of conventional bonds. The market has evolved during that time and green is not the only option for those looking to build a sustainable fixed income portfolio. We now have blue bonds, which fund ocean-based projects, and climate
34 | portfolio institutional | October 2019 | issue 87
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