Companies seeking finance have two main routes: equity financing or debt financing.

Equity financing requires giving up a percentage of ownership in the company (like selling shares). Debt financing requires eventually paying back the funds over an agreed period plus regular interest payments. Companies pursuing debt financing have two main paths: a loan from a bank or other financial institution. Or issuing bonds.

Bonds are like an I-Owe-You that can be traded by investors (bondholders). They have an agreed time period (often 10 years) after which the bond has matured and the value is repaid to the bondholder. Over the course of that period regular interest payments are paid by the bond issuer to the bondholder. This is called the coupon (coupon rate = the interest rate of the debt).

Though larger than the global stock market, the bond market is far more opaque, with fewer checks and balances, and huge power vested in a small number of players. As many banks start to limit their lending to carbon intensive industries, companies in the coal, oil and gas value chain are turning more to the bond market as a safe haven. By issuing bonds they can enjoy less public scrutiny, less transparency and ready access to trillions of dollars of debt. Accessing this cheap debt relies upon a chain of financial institutions: investment banks, ratings agencies and investors. 

The bond market has become a safe haven for dirty fossil fuel companies to fund their expansion. Every time investors buy fossil fuel debt they are helping a new coal plant, a new oil and gas pipeline come on line. It’s the fuel that drives the expansionary system. It needs to be put out.


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