Green Bonds Credibility at Stake
(1 December 2021 – France) Rapidly increasing demand for green bonds and sustainable finance has raised growing questions over authenticity.
Bank of America predicts total green bond issuance will tip US$1 trillion by the end of 2021 on the back of a record US$800 million in issuance to the end of Q3 2021. Yet the resurgent level of demand has raised doubts over the credibility of such vast new troves of sustainable debt.
Institutional investors and bond funds must apply transparent decision making to environmental, social and governance (ESG) bonds to purchase with cautious consideration applied. Both CFOs and governments are stretching the definition of what might commonly be viewed as a stock standard green bond due to the significant savings on debt interest on offer. Demand has led green bonds to be priced at a “greenium” (premium) to traditional bond pricing inferring issuers incur slightly lower interest-rate costs. With definitions being distorted ESG fund managers are increasingly turning to advisors to verify what issuers are reporting they will do with bond proceeds.
“We decide, not the issuer, whether the green bond is really green. We try to understand whether these countries have a chance to transition toward a more democratic version of their politics. Or whether they are stuck for decades with politics that will never change. When it comes to China, even if the green bond is purely perfect, we will not accept it” commented Mirova Fixed-Income Portfolio Manager, Bertrand Rocher.
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