International standards define Sustainable bonds asloans used to finance projects that bring clearenvironmental and social-economic benefits. Green bonds are defined as loans used to finance projects and activities that benefit the environment. Social bonds are used to finance projects achieving positive socio-economic outcomes for an identified target population, with neutral or positive impact on the environment.
There was a record supply of green bonds in 2019,lifting their overall stock to over $500bn. The overall demand for sustainable investments accelerated. ESG focused exchanged-traded funds and mutual funds, in both equities and fixed income, saw in flows of over $20bn in 2019, four times as much as the previous years, according to investment researcher Morningstar.
The Sustainability Bond Guidelines (see web links below) as of June 2018 have been published to confirm the relevance of the Principles in this context and facilitate the application of their guidance on transparency and disclosure to the Sustainability Bond market. The common four core components of the Principles and their recommendations on the use of external reviews and impact reporting therefore also apply to Sustainability Bonds.
The Green Bond Principles (GBP), the Social Bond Principles (SBP) and the Sustainability Bond Guidelines (SBG), referred to as the “Principles” have become the leading framework globally for issuance of green, social and sustainability bonds.
The ESG movement from within the finance sector has precipitated significant interest and growth of Sustainable, Green and Social Bonds. This interest seems likely only to grow.