ESG investors turn to green bonds
Green is the new black: ESG investors turn to green bonds to meet mandates, SMH, Myriam Robin, 9 Apr 17
As the billions of dollars in ethical and environmental funds swell, Australian corporates and governments are issuing increasing amounts of “green bonds” to access the cash.
Green bonds function just like normal corporate or government bonds, but the issuer has to promise to use the funds to fund some type of environmentally beneficial development. This investment doesn’t have to sustain a commercial rate of return itself – if the bond is instead underwritten by the total balance sheet of the issuer, it shares the issuers’ credit rating. Because of this, green bonds typically have identical yields to equivalent regular bonds.
Between 2014 and 2016, the total amount of money put in funds with some social or green investment principles grew from $US148 billion to $US516 billion across Australia and New Zealand, according to the Global Sustainable Investment Review, released in March.
Most of this growth, the report stated, came from professionally managed funds choosing to incorporate such principles into their main funds. Funds specifically targeting green or social impact investors amount to 3.8 per cent of Australia’s total professional managed assets market, up from 2.5 per cent in 2014.
The style of investments by such funds is changing in a way that shows increasing demand for green bonds. In Canada and Europe, the only two regions for which asset allocations were available to the Global Sustainable Investment Review report, a majority (64.4 per cent) of such funds were invested into green bonds – a rapid reversal of the dominant trend in 2014 when equities dominated.
The surging investment in green bonds, the review suggested, could reflect rising environmental concerns. According to Bank of America Merrill Lynch, $US90 billion of green bonds were issued in 2016, taking the total market past $US200 billion in early 2017. $US19 billion in green bonds were issued globally in the first two months of this year. At the end of February, $US2.3 billion in green bonds had been issued so far in Australia.
Australian governments and banks have led the way in green bond investments – their issuances have been oversubscribed, showing heavy local demand for the products. In a $300 million NAB green bond raising in December 2014, 54 per cent of the bond distribution went to fund managers, with another 30 per cent being purchased by institutions and pension funds.
HSBC’s Violeta Jovanoska, director of debt capital markets in its Sydney office, was involved in the first corporate green bond issue in Australia, a Euro-donominated bond issued by Stockland Trust Management in November 2014, as well as the NAB bond, which HSBC was a joint bookrunner on.
She said corporates were turning to green bonds as a way to access this swelling pool of money placed in funds with an environmental, social or governance mandate. As many investment managers have signed up to responsible investment or climate change agreements, green bonds are a way to meet that commitment………..
The lack of regulation around green bonds has meant some critics dismiss the area as “greenwash” marketing – an environmental sheen on what is essentially a regular corporate bond. It’s hard to say whether green bonds allow new green projects to be completed or if organisations are using them just to easily fund the more environmentally friendly parts of their investment agenda, with the green bond money going towards projects they would have funded anyway. Companies don’t have to turn green in any significant way to issue a green bond……http://www.smh.com.au/business/markets/green-is-the-new-black-esg-investors-turn-to-green-bonds-to-meet-mandates-20170404-gvd2v6.html
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