Investors could easily direct their money to what was sustainable, lowering the cost of capital for green projects - although the theorists overlooked that a pricing benefit of a few basis points could not be material for industrial investments.
Adding social, sustainable and blue bonds to the mix at first made little difference. They were small in volume and identical in structure to green bonds.
In 2020, the market has burst into greendustrial revolution: prodigious growth of structures of all kinds. Almost every day governments, banks and companies bring larger and more diverse offerings. Germany, Sweden, Luxembourg, Mexico, Suzano, Novartis, Daimler and Volkswagen are just some of the debut issuers this month.
To come is the biggest by far: the European Union, planning €225bn of green bonds to finance environmental projects through its pandemic recovery vehicle.
The future bond market will be a riot of differently hued and shaped, senior and subordinated bonds offering ESG claims.
Meanwhile, green debt’s pricing advantage has gone from perceptible to eye-popping.
In this striped and dappled bond market, however, there will be nowhere to hide.
Soon, issuers will have to start thinking, not about getting a nice cost saving from an ESG deal, but about whether investors might shun their grey bonds as old fashioned and embarrassingly linked to fossil fuels. For oil and gas companies, this is a real worry already.
At that point, the tilting of cost of capital towards sustainable activities might become a reality. Not as a carrot, but as a stick.