Gambling on Green

Chapter 4The New World of Bonds

The global ESG bond market is set to reach $1.5–1.8 trillion in 2022, up from $520 billion in 2020.¹ Given both the size and expected future growth of this market, corporate leaders should consider educating themselves about it. Why? Because ESG bonds are here to stay. The market is growing. They are increasingly important to your stakeholders, including investors and customers.

I want to start this chapter with a brief explanation of bonds, the mechanics behind them, and a comparison between corporate and government bonds. Understanding how government and corporate bonds work gives business leaders insight into why investors are attracted to government bonds as well as corporate bonds. After some brief comments on bonds in general, this chapter discusses a variety of ESG bond types, such as green, blue, and social. Just as important, this section describes why issues such as water conservation and climate change, as well as improvements in health care and job creation, are important to stakeholders, and how businesses and governments may be in a position to help solve these issues.

The Basics of Bonds

Bonds are, as defined by the US Securities and Exchange Commission:

a debt obligation, like an IOU. Investors who buy bonds are lending money to the company (or government entity) issuing the bond. In return, the company (or government entity) makes a legal commitment to pay interest on the principal and, in most cases, to return the principal ...