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When it was published The Fable of the Bees caused a scandal. The poem, released in 1714 and subtitled Private Vices, Publick Benefits, argued that individual viciousness could work towards the general good; commerce and industry depend on avarice and pride, take them away and mass unemployment would result.

It is a similar reasoning that lies behind the nascent green bond market, which looks to harness companies’ self-interest as a way of persuading them to clean up their acts.

The market is swelling as the push by governments to lower global carbon emissions, underlined by December’s Paris climate change accord, provides fresh impetus for trillions of dollars of investment into cleaner energy.

Issuance is on course for yet another record this year, according to Bank of America Merrill Lynch, with the bank forecasting up to $90bn to be sold in 2016.

“If you step back, what those instruments are there to do is to finance the transition to a low carbon economy,” says Tanguy Claquin, head of sustainable banking at Crédit Agricole. Energy, transport and real estate, he argues, are key to the shift, as well as banks.

However, the rapidly growing market remains self-regulated. While the International Capital Market Association has a set of guidelines for issuers that requires companies to make more disclosures if they are followed, anyone can issue a bond and claim it is green.

The market relies on the expectation that no company would want to incur the shame of issuing a “green” bond and not using the proceeds for environmentally friendly ends.

That leaves the vexed question of trying to work out a commonly held definition of “green”, with the struggle to do so throwing up some uncomfortable ramifications for a market intended to accelerate the spread of a low carbon economy.

“Sometimes we have highly polluting companies issuing green bonds,” says Frederic Samama, deputy global head of institutional sales at Amundi, Europe’s largest listed asset manager. “And at the opposite end we had green issuers that were refusing to issue green bonds because of the extra cost.”

Companies and banks have accounted for 58 per cent of green bonds sold in 2016 to date, according to BofAML, with the rest issued by supranational agencies, such as the European Investment Bank, and governments.

The vast majority of the corporate issuance comes from banks, which are now the dominant issuer responsible for $25bn of the $121bn of bonds labelled green ever sold.

Chinese banks, in particular, have become some of the biggest issuers in response to pressure from Beijing to reduce pollution. Some may raise an eyebrow at banks — and Chinese ones in particular — as an environmentally friendly industry.

Other deals have included a residential mortgage backed security deal labelled “green” by the rating agency Moody’s — their reasoning is that the Dutch mortgages backing the product had very high standards of energy efficiency.

For companies tapping the market, there are both financial as well as public relations benefits, says Mr Claquin, as they can diversify their investor base and send a message to shareholders and governments.

Apple — a company that pays close attention to how its brand resonates with the public — is a recent issuer.

Jean-Marc Mercier, co-head of debt capital markets at HSBC, suggests that larger institutions with more sophisticated funding operations, such as banks, can more easily incorporate green bonds into their borrowing plans. By maintaining a presence in the bond markets, they can spread the cost of running a green policy over many issues.

Banks can also signal to clients and others that “if you just issued 500m of green bonds, you’re telling everyone you’re open for business, in a green way”, he says.

There are, of course, incentives for buyers of the bonds, too. Although bonds are normally sold at similar prices to equivalent non-green bonds, they often trade more strongly in secondary markets as the market attracts ‘buy-and-hold’ investors.

“Companies that are concerned for financing green projects will have a better future,” argues Mr Samama at Amundi. Companies, for example, which are environmentally friendly are much less likely to face a potentially financially painful backlash from consumers and politicians about their business models.

A combination of a push by governments to tackle global warming and investors’ growing appetite has helped grow the market, though it remains tiny relative to the multitrillion-dollar corporate bond market.

Mr Mercier argues that the next chapter in the growth of the market may be fuelled if tax advantages are handed to the buyers of green debt, as is the case with the municipal, or local government, in the US.

“The debate will be about tax,” says Mr Mercier. “Municipal financing in the US has a tax advantage. If you really want it to accelerate, at some stage it will be a tax issue.”

But as the market grows the questions over what counts as “green” will only intensify, and the investors fuelling that growth will probably face further trade-offs between finding bonds to buy and ensuring their money is used exactly how they would like.

Additional reporting by Thomas Hale

This article has been amended to reflect that Starbucks did not sell a green bond.

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