PI Partnership – Jupiter Asset Management
Estimated greenium dispersion widening
20 15 10 5 0
-5
-10 -15
of the effects of growing greenium dispersion and continue to emphasise the merits of internal green bond verification processes.
Average 20th percentile
80th percentile Source: Jupiter, Bloomberg 22.04.22²
Amidst tightening financial conditions, we expect green bonds to continue gaining market share but overall issuance volumes to remain constrained, while demand should continue to rise, buoyed by supportive regulatory and industry commitments to environmental challenges. However, the widening dispersion in greenium is suggestive of a more discerning investor base in the face of selling pressure. Currently, the data set for analysing the level and dispersion of greeniums is limited so we should be wary of drawing too strong a conclusion. However, as industry standards for green bonds start to ratchet up over the next 12 months, we are wary
The largest contribution to credit valuation dispersion within green corporate bond markets comes from the real estate sec- tor, presenting a conundrum for investors as it arguably has the highest degree of dispersion in terms of green bond frame- work quality. Typical property green bonds take a light touch approach to the greenness of the “use-of-proceeds” within their green bond frameworks, often falling back on building certifi- cation levels that are unambitious. Alternatively, the certifica- tion itself may be unreliable as a proxy for real world environ- mental impact. We are encouraged by moves to harmonise certifications and the shift away from design phase certifica- tion to operational emissions and reporting that captures emis- sions footprints per square metre. The Climate Bonds Initia- tive’s building criteria are helpful, although we feel the EU Taxonomy’s watered-down version will leave investors with work to do to discern which property green bonds are consist- ent with their environmental objectives.
The real estate sector faces a myriad of structural head- winds, now compounded by the cyclical impact of a rising interest rate environment – this is why credit valuations are weaker than similarly rated bonds. This provides opportuni- ties for credit investors willing to take a long-term view on company fundamentals and focus on those green bond issues whose frameworks are more consistent with our environmental objectives.
1) Dispersion as measured by the difference between 20th and 80th percentile credit spreads of BBB-rated bonds within the BAML Green Bond Index and the BAML Global Corporate Index.
2) We used a matched pair approach to calculate 6 month MA of greenium in the secondary market. Important information
This document is intended for investment professionals and is not for the use or benefit of other persons, including retail investors. This document is for informational pur- poses only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the individuals mentioned at the time of writing, are not necessarily those of Jupiter as a whole, and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of the information, but no assurance or warranties are given. Holding examples are for illustrative purposes only and are not a recommendation to buy or sell. Issued in the UK by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. 28943
June 2022 portfolio institutional roundtable: Sustainable debt
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Greenium credit spread 19.04.2019 19.10.2019 19.04.2020 19.10.2020 19.04.2021 19.10.2021 19.04.2022
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