Sustainable investing: How ESG bonds are raising concern among investors

A new type of bond that penalizes issuers for failing to meet social and environmental goals is raising concern among some investors that buying the debt may not be all that ethical.

Japanese real estate firm Hulic Co. recently joined a handful of borrowers worldwide in selling so-called sustainability-linked bonds, but the market’s reception has been underwhelming. Such securities offer an extra coupon if the issuer fails to meet goals, and for some investors that raises a troubling question: is it really ethical to profit from a company missing its green or social targets?

The muted reaction is fueling an