ESG Club Conference 2022 – Feature
Sindhu Krishna
Head of sustainable investments Phoenix Group
Julien Halfon
Head of pension and corporate solutions BNP Paribas Asset Management
Claire Curtin Head of ESG Pension Protection Fund
Peter Mennie
Global head of ESG integration and research Manulife Investment Management
“The regulation, like Sustainable Finance Disclosures Regula- tion (SFDR), is important to guard against greenwashing and help set standards so investors can objectively identify good products,” said Peter Mennie, global head of ESG integration and research at Manulife Investment Management. He does not believe regulation will make investors buy sus- tainable-labelled debt at any price. “Obviously, it is an easier solution to categorise a fund to invest solely in labelled debt, but that is avoiding a large part of the market and not giving your clients a good service in creating a sustainable product. “There has been a huge rise in the number of green bonds. Last year in Asia, one in five issues were labelled bonds. Vol- ume has shot up six times over the past five years, but 90% of outstanding debt in Asia is unlabelled,” he added. “So by con- structing a sustainable product that does not consider unla- belled debt, you are missing a large part of the market.” Yet do not fall into the trap of believing a sustainable label means a sustainable bond. “Due diligence is key,” Mennie said. “In thinking about what you are trying to achieve you are creat- ing the metrics to identify whether a particular issue is going to lead to the outcomes you are seeking. “And when looking at a labelled bond, you are making sure that it is doing what you are hoping it will do and not refinanc-
ing the balance sheet whilst the corporation is doing some- thing less attractive elsewhere.
“Labelled bonds are an easy trap if you are trying to comply with the regulatory rule, but not one I would encourage being a focus in a sustainable fund,” he added.
Show me the money
“In the listed space, green bonds are exploding in Asia and Europe,” Halfon said. “Developed markets are still 60% to 70% of the total, but labelled bonds are increasing fast in emerging markets.” Most of the proceeds of this debt are invested in projects focused on renewable energy, intelligent buildings and logis- tics. But what returns can investors expect from backing these projects and companies? “A greenium has gradually developed, which is more pro- nounced in Europe than in Asia,” Mennie said. “You have to look at these things on a risk-adjusted basis. We see in a number of green bond issues lower volatility, and whilst they are drawing on the same capital structure, they are indicative of management teams that are forward thinking and trying to manage their risks in a more effective way. In what was a central theme for Mennie, he said Manulife spend a lot of time engaging with companies around the globe.
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