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    Responsible investment quarterly update

    Responsible investment quarterly update

    18 January 2022 Responsible investment, Fixed income

    Highlights

    • The 26th UN Climate Change Conference (COP26) concluded, with highlights including the launch of the International Sustainability Standards Board (ISSB) and progress on global carbon markets
    • Records were broken as the EU launched the largest-ever green bond, and Ford issued the largest ever green bond in the US corporate debt market
    • Issuance of impact bonds continued to grow over 2021, with governments, supranational bodies and financials still to the fore, totalling over $1trn by year end.

    News highlights: Q4 2021

    COP26 took place in Glasgow in late October/early November, which led to a wide range of major announcements by governments and corporations, though there were notable disagreements on some issues. Regional news highlights include the following.

    • In the US: President Biden’s administration announced major initiatives focused on tackling climate risk in the financial system, and the US Department of Labor published proposals designed to allow US pension plans to take account of environmental, social and governance (ESG) factors.
    • In Europe: The European Commission opened a consultation focused on improving corporate governance; the EU’s inaugural green bond was the largest-ever green issue, raising €12bn; and the European Commission delayed the application of some Sustainable Finance Disclosure Regulation (SFDR) rules to 2023.
    • In the UK: The Chancellor published “Greening Finance: A Roadmap to Sustainable Investing”; the Bank of England explained how it will ‘green’ its corporate bond purchase scheme portfolio; and major consultations were opened by the Department for Work and Pensions (DWP) and Financial Conduct Authority (FCA).

    For more information on our approach to responsible investment, please visit our dedicated responsible investment microsite.


    Impact bond issuance continues to accelerate

    • Issuance of impact bonds continued to grow over 2021, with governments, supranational bodies and financials still to the fore, totalling over $1trn by year-end.
    • Records were broken in green bond issuance as the UK government’s second issuance of green gilts exceeded £8bn, closely followed by the European Union’s issue of €14bn of green bonds.
    • Only 24% of impact bonds analysed by Insight over Q4 fully met our expectations for sustainable issuance.

    Figure 1: Total issuance (USD) by sector31

    Total issuance (USD) by sector and by year


    Figure 2: Total issuance (USD) by year32

    Total issuance (USD) by sector and by year


    Table 1: Largest impact bond issues in Q4 202133

    IssuerIssuer typeSize of issueBond type
    EU government Government €14bn Green
    UK government Government £8.3bn Green
    German government

    Government

    €7.7bn Green
    Caisse d'Amortissement de la Dette Sociale (CADES) Government agency €5.9bn Social (refinancing)
    International Bank for Reconstruction and Development (IBRD) Supranational agency $5bn Sustainability

    A note on responsible investment and impact bonds: Investing responsibly means taking all risks, including ESG risks, into account when designing a solution. Investing in impact bonds is one way to encourage a positive environmental or social impact with your investments, but we believe it is more effectively done when considered alongside other relevant ESG factors within the framework of a responsible investment policy and approach.


    Insight impact bonds ratings in Q4 2021

    Our analysis of 58 impact bonds issued in Q4 2021 resulted in the following ratings:

    bonds were rated dark green, indicating the bond meets Insight’s minimum sustainability requirements
    bonds were rated light green, indicating there are weaknesses in the bond with regard to sustainability
    bonds were rated red, indicating the bond does not meet Insight’s minimum sustainability requirements

     

    Industry Bond type ESG performance met? Bond framework criteria met? Impact criteria met? Traffic light score
    Communications Green Yes Yes Yes

    Analyst assessment: This issuance focusses on financing energy efficiency projects for IT infrastructure and data centres, and reduction of electronic waste. The intended use of proceeds is strongly aligned with the issuer’s sustainability strategy, a net zero economy and a circular economy. Procedures are in place to mitigate and manage any ESG risks associated with the renewable energy projects and there is a strong governance framework surrounding the management of proceeds. The rest of the framework is aligned with the ICMA Green Bond Principles.

     

    Industry Bond type ESG performance met? Bond framework criteria met? Impact criteria met? Traffic light score
    Consumer Discretionary Sustainable Yes Yes Yes

    Analyst assessment: This issuance focuses on financing green buildings, energy-efficiency projects, eco-efficient projects, and the response to the COVID-19 pandemic. This was rated light green as despite use of proceeds categories that are likely to deliver a positive impact and lead to an improvement in the issuer’s ESG performance, there lacked detail on how environmental and social risks associated with the use of proceeds would be identified and mitigated. The rest of the framework is aligned with the ICMA Green Bond Principles and the UN Sustainable Development Goals.

     

    Industry Bond type ESG performance met? Bond framework criteria met? Impact criteria met? Traffic light score
    Automotive Green No Yes No

    Analyst assessment: The proceeds from this issuance will be used to repay debt. We believe this is inappropriate for a green bond as we do not consider the repayment of debt to lead to an additional positive environmental or social impact.

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