Banking News

Inaugural “Blue Bond” issuance - ESG taking centre stage

(23 November 2018 – USA) Institutional investors who traditionally ascribed minimal concern to what their portfolios were supporting are pushing purpose and impact to the top of their agendas.

Green investment gathered steam after a group of Swedish pension funds made waves in 2008 with concern towards climate change. They wanted to find investments that supported climate-friendly outcomes with high-quality, liquid products that would not carry project risk, provide transparency and regular touch points on how their investments would achieve stated goals.

The group approached the World Bank in 2008 to design what became the green bond. It is a product that has raised more than US$500 billion since then with growing issuance in China in particular. Green bonds help investors address the environmental, social or governance (ESG) risks that can have a material effect on returns. The concept behind it is now expanding into other types of so-called labelled bonds, namely those dedicated to a specific social purpose. The Seychelles issued the first “ Blue Bond” titled because the aim is to support marine and fisheries projects. The nation raised US$15 million from investors including Calvert Impact Capital and Nuveen. Issuers now include companies, banks and national sovereign interests. A record US$160 billion of ESG debt was sold in 2017 according to Bloomberg data. HSBC has provided more than US$25 billion in sustainable financing over the past year, supporting projects such as renewable energy and electric vehicles in 35 countries and territories. The milestone comes one year after the bank announced its commitment to provide US$100 billion in sustainable financing by 2025.

Daniel Klier, Global Head of Sustainable Finance, HSBC, stated “We set out our US$100 billion commitment as an acknowledgement of the scale of the challenge in making the transition to a low-carbon future. As the landmark report by the UN Intergovernmental Panel on Climate Change (IPCC) recently revealed, that challenge is now urgent and unprecedented.” HSBC aims to play a leading role in the transition to a low-carbon world. Mr Klier said he was pleased to be making progress against the target, but recognised that “there is still much more to be done”. Worldwide assets under management (AUM) in portfolios that use sustainable investing grew more than 600 percent to US$23 trillion the ten years to the end of 2016 according to a report from the Global Sustainable Investment Alliance. But as asset managers embrace ESG there are questions over whether the investment case is solid. There are also fears that some asset managers are showing interest because of ESG's popularity and that their lack of expertise may lead to disappointing returns. The question has been raised - is ESG just being used as a marketing tool? Accusers say that if an asset manager believes ESG improves returns, it should be rolled out across its entire range. Iain Richards, head of governance and responsible investment at Columbia Threadneedle, the £370bn asset manager, says ESG has an important role in the investment process. "If you look at investing and decisions around capital, ESG is about providing an additional window of information."