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

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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