New transparency regulations in Europe, taken together, are a game-changer for Euro investment grade bonds (CSRD, SFDR, and an EU green bond label). We expect this will raise the interest in sustainability, but will also increase the need for in-depth fundamental credit analysis, careful pricing of risks, and active management of IG bond strategies. Think you’re ready?
The ‘greenium’, or premium afforded to a green bond, is modest. We think part of the reason is that the increased information supplied by companies issuing green bonds is allowing investors a chance to better evaluate the overall sustainability of these issuers. This is particularly true for the newer ‘sustainability-linked’ bonds, where the issuer pays a lower coupon for meeting pre-declared corporate sustainability targets. Clearly all bondholders (and all stakeholders) benefit from well-defined and clearly-reported targets.
We use extra-financial factors as an aid in preventing credit accidents in all our credit analysis, not merely our sustainable strategies. With the greenium so narrow, we see no reason for a sustainable universe to underperform a wider bond benchmark.
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”Because Sustainable Money is, and will be, key to the societal issues which threaten our economy, it is important to maximize its risk adjusted performance.
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