Green Bonds have been on the market since 2017. They generally fall into two categories:
Project Based - These bonds are often labelled Green, Social or Sustainability Bonds as the proceeds are dedicated to green and/or social projects.
Target-Based - These bonds are often labelled Sustainability-Linked Bonds and whilst there is no requirement on for the use of the proceeds, the coupon/return is directly linked to pre-determined KPI's.
Together with Traditional Bonds issued by ESG leaders, today Green Bonds are gathering interest from institutional investors & investment advisors. They are one of a range of instruments that can help shift portfolios to net-zero and reward climate change mitigation and social betterment.
But there are issues that need to be addressed in the evaluation of issuers and green bonds:
- Labels: Investors need to get behind the labels. Does the issuer have a green framework that aligns them with a net-zero pathway. And does the bond issue have materiality for the issuer, with respect to their core business?
- Corporate Disclosures: Many corporates only disclose Scope 1 and Scope 2 carbon emissions. Whereas the all encompassing Scope 3 data (direct and indirect carbon emissions as a result of business operations, heating and electricity use), may not be readily available. Equally important, is the future direction of emissions. Is the issuer looking to improve on their current situation?
- Sovereigns: Whilst there are tools available to assess a countries commitment to climate change, but is it possible to engage and impact a sovereign issuer? The reality is that this may be harder, and yield slower results compared to a corporate.
In general, sustainability and social data for corporates and sovereigns in both developed and emerging markets is neither uniform nor complete. So to identify the Green Bond investment managers that have an informational edge, deeper qualitative research is required.
Looking for the best Green Bond investment managers? Start your search inside RFPnetworks.
