Feature
Rishi Sunak turned green last year. The chancellor raised £10bn from issuing a green sovereign bond in September, which was so popular that he returned a month later to collect a further £6bn. The proceeds are funding projects that tackle climate change, cre- ate “green jobs” and improve the UK’s infrastructure.
GREEN MONEY
With demand for sustainable debt growing, Mark Dunne looks at how ESG is influencing the bond markets.
These issuances highlight the strong demand for debt that seeks to protect our planet or improve equality. Indeed, the first green gilt received orders of around £100bn and Sunak is planning to raise a fur- ther £10bn this year. It appears that ESG is not just a strategy for picking equities but is establishing itself as a method of assessing risk in the bond markets. Indeed, in 2021 the value of the sustainable bond market jumped 45% to $1trn (£792bn), or 10% of the global debt markets, according to Refinitiv. This was 20 times larger than the market was worth in 2015. Regulation and the need to diversify sources of fund- ing are driving this growth in fixed income, along with an increasing awareness of ESG risks. “Alongside price, operating risk and financial risk, ESG is part of the core investment process,” says Mitch Reznick, head of sustainable fixed income at Federated Hermes.
Going your own way Green bonds are not the only way to make debt port- folios sustainable. Other fixed income vehicles designed to fund specific projects have emerged, including sustainability-linked bonds, social bonds, transition bonds and blue bonds, which focus on ocean conservation.
“There are several paths to building a sustainable bond portfolio,” Reznick says. And this includes looking beyond labelled bonds, a strategy that has seen issuers of traditional debt being questioned more and more on their ESG policies. “It does not have to be labelled for us to like a bond’s ESG credentials,” says Scott Freedman, a fixed income portfolio manager and credit analyst at New- ton Investment Management. “It is looking at the E, S and G credentials of an issuer, and the extent to which it considers the material risks of its impact on society and the environment. Is the bond achieving good outcomes without having to be labelled?”
Picking a winner Judging a bond’s ESG credentials may not prove too much of a departure from existing assessment meth-
June 2022 portfolio institutional roundtable: Sustainable debt 27
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32
