The New ESG Bond Markets

This chapter analyses the importance of sustainable finance and its’ fundamental contribution to finance the necessary investments for energy transition with a view to carbon emission goals (the so-called financial gap). The issuance of green bonds and blue bonds has become one of the most important tools to raise this financing among the different types of investors, from pension funds to private equity funds or even hedge funds. We look at the origins and definition of the green bonds market, and further analyse the private/permissive governance rules issued by the most important institutions, such as ICMA or CBI, and the methods for external verification of the green nature of the debt, project or investment, in particular the second opinions. We then confirm that private governance rules are insufficient and raise concerns about greenwashing. Countries and organizations have acknowledged this and decided to adopt more prescriptive rules by issuing regulations and guidelines on ESG matters, in particular the EU with the Taxonomy Regulation or the SFDR. We further analyse proposals from different scholars on the nature of future ESG governance rules: the hybrization approach and the contractual approach. Finally, we examine the other sustainable finance instrument: blue bonds—its definition, the respective issuers, and the existing blue bond programmes.