Treated as equals: Give green bonds the same importance as conventional bonds

Growth of burgeoning products cannot be ignored

clock • 4 min read
Kunal Mehta and Loubna Moudanib of Vanguard
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Kunal Mehta and Loubna Moudanib of Vanguard

Interest in environmental, social and governance (ESG) investing has grown rapidly in recent years as investors increasingly look for ways to mitigate ESG-related risk or effect meaningful change. Fixed income is no exception to this trend, as bonds marketed under a number of ESG labels have proven popular with investors.

These include social bonds, whose proceeds are used to finance or refinance projects that provide clear social benefits; sustainability-linked bonds, which have financial or structural characteristics that can vary depending on whether the issuer achieves predefined sustainability or ESG objectives; and green bonds, which back projects with clear environmental benefits. Corporate green bonds now make up about 1.8% of the Bloomberg Barclays Global Aggregate Corporate Bond Index, up from less than 0.4% five years ago, driven by rising issuance, growing institutional demand and increasing s...

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