Green bonds are one of the more visible sides of the increasing interest in environmental, social and governance (ESG) impacts on investing. The events of 2020 appear to have only accelerated this trend.
It is something of a truism that where there is investor demand, supply will follow. As investors have focused more on ESG issues, so bond markets have responded. Ratings agencies now include ESG analysis in their ratings, while there are a host of ESG-related bond labels including social bonds, sustainability-linked bonds and green bonds.
Issuance of these bonds has been increasing, with green bonds dominating this area. As can be seen in figure 1, in 2016, green bond issuance was around $100 billion. Last year it was just under $300 billion1, and HSBC is expecting this to increase to between $310 and $360 billion in 2021, partly due to ongoing demand, but also given news that a Biden-led US will rejoin the Paris Climate Accord and create a backdrop more open to ESG considerations.