An introduction to Green Bonds and trends in the Green Bond Market

Melting glaciers, devastating storms, and catastrophic floods are standard news in newspapers and news broadcasts. Sustainability has thus become one of the buzzwords of the 21st century. The effects are also increasingly being felt by companies. In order to protect the planet and people in the Global South against further exploitation, many individuals are limiting their consumption to sustainably manufactured products. 

A change in investment behavior is also discernible. According to Reuters, a total sum of $649 billion was invested into ESG-focused funds - that is, funds that emphasize the Environmental, Social and Governmental factors of the investment - worldwide in 2021. This represents a growth of 19,74% compared to 2020 and 127,72% compared to 2019. 

But there are also other financial instruments that are very relevant in ESG investing. Here we refer to green bonds, whose issuance has experienced tremendous growth over the past 10 years. To exemplify, total corporate green bond issuance in the world has increased from $5B in 2013 to a staggering $95.7B in 2018, according to recent numbers reported in a paper on corporate green bonds by Caroline Flammer. Although relatively small compared to the capital inflow into ESG funds, the green bond growth rate corresponds to an 1814% increase from 2013 to 2018! 

So what are green bonds?…