ESG news


GOVERNMENTS TO DRIVE SUPPLY OF GREEN BONDS IN SECOND HALF OF 2020 – NNIP


Green bond issuance is expected to pick up in the second half of the year largely driven by sovereign issuers, an asset manag- er has told portfolio institutional. Bram Bos, lead portfolio manager, green bonds, at NN Invest- ment Partners, said that volatility took a lot of supply out of the market in the first half. “So far this year, issuance has been low- er than we expected. Issuers are postponing them into the sec- ond half of the year.


“One sector where we expect a lot of issuance from in the sec- ond half are governments,” he added. “We spoke to several governments after the Coronavirus crisis in March and they have committed to start issuing green bonds in the second half of this year.”


Bos added that although fresh bonds will be issued in the final months of the year, growth is going to be lower in 2020 than the firm initially projected. Tapping the green bond market has its benefits for govern- ments. In the UK, for example, developing the onshore


renewable energy infrastructure could boost the economy by £29bn in the next 15 years, Thrive Renewables, an inves- tor, believes. Such an investment could also create 45,000 jobs and help the UK meet its target to be net-carbon neutral by 2050. To achieve this target renewable assets that generate 5.5GW of energy needs to be created each year. This is three times great- er than the capacity created in 2019.


This is a good problem to have. The government needs and huge economic boost and to create new jobs, which it can achieve through meeting its environmental targets. It just has to borrow even more money to do it at a time when the national debt exceeded GDP for the first time since the 1960s. Wind is cheaper than gas. Generating energy from onshore wind turbines is 12.5% less expensive than burning gas, Thrive says, predicting that the cost of onshore wind will continue to decline.


The problem is that the UK government has not issued a green bond before, but, with the cost of meeting its environmental targets put at £1trn over 30 years, the argument from raising capital to invest in environmental projects is strong.


BOOHOO HIGHLIGHTS NEED FOR BETTER SOCIAL RISK SCREENING IN RETAIL STOCKS


With social risks expected to rise in a post-Covid world, some investors have already received a harsh lesson in what can hap- pen when you fail to manage your portfolio responsibly. As the lockdown that was ordered in response to Covid-19 was eased at the start of July, a spike in the illness in Leicester quickly followed. An investigation into the outbreak found that many of the sufferers were connected to a clothing factory. It supplied Boohoo, a budget fashion brand aimed at women under 30.


A closer look unearthed evidence of staff paid below the mini- mum wage, where in some instances they received as little as £1 an hour.


Slavery was commonly mentioned in news reports covering the story and those invested in the company suffered as retail- ers pledged not to stock its products. In just two days £2bn was wiped off Boohoo’s market cap. Major shareholders include Jupiter, Invesco, Baillie Gifford and Premier Miton. Aberdeen Standard Life Investments also had exposure. By the time it announced it was exiting the busi- ness on 10 July, the value of its investment had halved. Aberdeen Standard’s deputy head of UK equities, Lesley Dun- can, confirmed that the firm invested on Boohoo at its 2014 IPO, at which point it passed an ethical screening assessment.


“In the last few weeks our concerns have grown on the pro- gress being made, which even before recent developments, had negatively impacted our conviction levels in the company,” she said after the crisis broke. “Having spoken to Boohoo’s management team a number of times this week in light of recent concerning allegations, we view their response as inadequate in scope, timeliness and gravity,” she adds. Aberdeen Standard were not the only ones to miss the social risk the company was carrying. An analyst in 2018 said: “It’s hard to fault Boohoo. It’s a well-run business with a strong bal- ance sheet and fantastic growth prospects.” The social risks of investing in Boohoo should have been clear. Initial concerns about clothes factories in Leicester were raised in the media in 2018, slave labour at Boohoo and other UK fashion retailers were also mentioned in a 2019 inquiry of Environmental Audit Committee at the House of Commons.


The signs were there that investors and analysts should look carefully at the supply chain of clothing manufacturers. According to a 2016 survey of 71 retailers, 77% admitted that their supply chains involved some form of people being paid below minimum standards.


Those who chose to ignore this will have to suffer the financial losses and reputational damage in having to explain how they missed such working practices.


Issue 95 | August 2020 | portfolio institutional | 27


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