has developed standards to help small investors buy covered bonds. They have been developing a green bond standard for some time. It is well advanced and when it comes into effect the authorities will bring in outside people to monitor it, such as S&P or Moody’s. That will allow smaller investors, who do not have the research capability, into the market. We will get the supply – the $6trn (£4.8trn) or whatever we need – which will coalesce with better regulation allowing smaller investors into the market and compressing the greenium.
That is the roadmap we are heading into, but from my experi- ence of covered bonds, setting out to get a label takes five to six years. Mark Thompson: I come at this from another angle. I want my bond funds to be sustainable, I do not necessarily want a sus- tainable bond fund. As a fiduciary, I have to make a good return. Therefore, I expect my bond managers to assess the credit worthiness of the issuer, taking into account all of the risks and opportunities pertain- ing to that issuer. But I will never tell my bond managers to buy green bonds, no matter the premium. My objective is to save pensions, not the planet.
However, if you incorporate the risks and opportunities in assessing the credit worthiness of the issuer, and the manager is doing it well, then you end up on the right side of the angels, as opposed to starting with: “I want to save the planet.” I do not know any pension scheme that only wants to invest in green bonds. Forest: The regulation will change. There are a lot of possibili- ties to promote green bonds in pension funds with tax incentives. Thompson: That has not happened in the UK yet. I do not feel a UK trustee board would go against their fiduciary duty of get- ting an appropriate return just to invest in green bonds. Hav- ing said that, it does not mean you cannot achieve an appropri- ate return through green bonds. The label of green is tricky. Some bonds are not labelled green but are green. We need more of an understanding as asset owners about what the fund manager is doing and why they are doing it.
Stewardship is important, too. You cannot do the stewardship part without thinking about how you are doing it from an equity perspective. The equity and bond parts have to come together.
10 June 2022 portfolio institutional roundtable: Sustainable debt
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