Green, social, and sustainable bonds – collectively known as ESG labeled bonds – specify that an amount equal to the bond proceeds will be invested in environmentally responsible initiatives, socially conscious projects, or, for sustainable bonds, a combination of both. For the investor inclined towards sustainability, the growth in ESG labeled debt outstanding, as discussed in a previous Quick Takes ("ESG Labeled Bonds: A Very Fashionable 'Label,'" 2021), may seem like a great opportunity. However, investors must look beyond the ESG label since that label is not a guarantee that a bond will meet one’s ESG expectations.
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