The shape of green bond investing to come

– Green bonds must meet three concepts – Greenness in use of proceeds, Integrity of implementation, and Ambition of the issuer – to cut out greenwashing.

Xuan Sheng Ou Yong of BNP Paribas Asset Management writes in this note:

Our belief is that green bonds can help finance the transition journey of issuers to a sustainable model. But we think that green bonds must now meet three concepts – Greenness in use of proceeds, Integrity of implementation, and Ambition of the issuer, to cut out greenwashing. In this post, we explain briefly how our upgraded methodology applies these three concepts and more.

Here is an excerpt from their article:

The concepts of ‘green-ness’, ‘integrity’, and ‘ambition’ should be distinguished when we assess green bonds.

• Green-ness should be about the extent of the environmental benefits that the use of proceeds generates, i.e. how green is this green bond?
• Integrity should be about the processes and management systems of governing the proceeds, mitigating potential negative risks from the associated projects, and measuring and reporting on the green bond project, i.e. how strong is the integrity of the green bond?
• Ambition concerns the issuer’s ambition, and the extent to which the bond contributes to it, i.e. how does the bond contribute to achieving the issuer’s decarbonisation efforts?

Also see this paper by Kim Schumacher about “The Shape of Green Fixed Income Investing to Come.” And this study entitled, “The pricing of green bonds: external reviews and the shades of green.”

And this article from Aegon Asset Management explains a framework for considering green bond investments.

Finally, check out this upcoming webcast: “Sustainability Linked Loans: Unpacking Sustainability Linked Loans, ESG Considerations and Avoiding ESG-washing.“