The transition to a sustainable economy – and the role ESG investing plays as part of it – is becoming increasingly mainstream with companies and corporate debt investors alike.
Susan Barron, our Head of Green and Sustainable Capital Markets, has observed three key trends emerging: the increased focus from regulators and the public to deliver the transition to lower carbon economies, the importance of transparency and taxonomy in the marketplace, and social and sustainability bonds driving growth alongside the more established green bond market.
In this video, Barron examines how mounting pressure from economies seeking to address climate change is driving the rise of sustainable and green bonds to potentially overtake traditional debt financing options in the future.
Environmental, Social and Governance (ESG) has become more mainstream. For investors, they are increasingly required to overlay ESG factors in terms of their normal investment processes. Regulators and policy makers are increasingly focused on this particular area, it is evidenced by not only a significant increase in climate change policies but also in terms of the guidance that they are providing corporates and other issuers as to how they can transition to a low carbon economy.
As the green, social and sustainability market has grown in recent years, there's been a greater call to encourage transparency and disclosure. As a way in which to address these calls we've seen regulators and policy makers looking to provide some form of additional guidance to the market.
We've seen the EU Commission's Technical Expert Group publishing documentation in June to provide a level of support around the Green Bond Standard as well as the EU finance taxonomy. We've also seen the UK publishing their first Green Finance Strategy at the time of London's first Climate Action Week. Together it is hoped that an increased transparency and disclosure can lend itself to creating a more robust and longer-term market.
The green bond market is the oldest of the three asset classes, having been established in 2007 but as the market has developed where you've seen different regions and different issuer types come into the market to look to try and transition to a low carbon economy, we have seen the emergence of social and sustainability bonds in addition to the green bonds.
Since the start of this year we've seen significant growth across all three asset classes totaling up to 37% versus the first half of year last year. The most notable growth however was in the sustainability bond markets of up to 98% and the social bond markets of up to 63%.
Combatting climate change and transitioning to a sustainable economy is one of the biggest challenges of our time. And hopefully collectively we can continue to take all of the information and drive this bond market forward.
An expanded Impact Series study finds that tilting portfolios in favour of high ESG bonds can generate positive returns across various markets, geographies and sectors.