Green, Social, and Sustainability (GSS) bonds represent an evolving and increasingly popular segment of the fixed-income market. These bonds are issued with the intention of funding projects that have a positive environmental, social, or governance (ESG) impact. Each category of GSS bonds—Green, Social, and Sustainability—has distinct characteristics that align with specific ESG objectives.
GSS Bonds are debt securities issued to finance or refinance projects and activities that deliver on environmental, social, and governance (ESG) criteria. Investors are increasingly drawn to these bonds due to their contribution to sustainability and positive societal outcomes, along with financial returns.
By the close of 2022, the total issuance of Green, Social, and Sustainability (GSS) bonds hit $3.8 trillion. Of this sum, green bonds accounted for the majority, comprising 64%, while bonds from emerging markets made up 16%. However, the year 2022 witnessed a 19% dip in GSS bond issuances, totaling USD 948 billion, marking a decrease from the previous year's figures.
Types of GSS Bonds
The purpose of Green Bonds is to finance projects with environmental benefits, such as renewable energy, pollution prevention, sustainable water management, and climate change adaptation. The use of the proceeds are explicitly directed towards green projects with defined environmental benefits that are often assessed and reported by the issuer.
The purpose of Social bonds is to aim to finance projects that address social issues like affordable housing, education, healthcare, and employment generation, particularly for target populations such as the underprivileged or marginalized communities. The use of proceeds is allocated to social projects with clear objectives aimed at addressing or mitigating a specific social issue or achieving positive social outcomes.
The purpose of sustainability bonds is to combine elements of green and social bonds to finance a mix of both environmentally-friendly and socially-beneficial projects. The use of proceeds: Used for a combination of green and social projects. Issuers must track and report the environmental and social impacts of the projects funded by these bonds.
The iBoxx® Global Green, Social & Sustainability Bonds Index tracks the performance of investment-grade and high-yield bonds with a focus on global green, social, and sustainability initiatives across sovereign, sub-sovereign, and corporate sectors, denominated in EUR, USD, GBP, and CAD. It ensures adherence to investability and liquidity criteria and is part of a broader selection of indices.
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