Bonds have their own ESG issues
The craze for environmental, social and governance (ESG) assets is too great for bond investors to ignore. This is the view of the M&G bond team, which recently highlighted an explosion in ESG-themed corporate debt issuance. As director of bond investments Mario Eisenegger notes, companies issued new ESG bonds worth $ 350 billion in the first half of 2021. This is already ahead of the total amount for 2020, itself a record year for the issuance of ESG corporate debt.
Bond investors will increasingly have to take ESG considerations into account, even if these issues are not their top priority. That’s great news if you care: your concerns are being more widely considered outside of the stock market. But as with equities, this boom is creating a whole new set of complications.
First of all, there are many different forms of ESG bonds to understand. Although investors are likely to differ on both the use and interpretation of certain terms, M&G’s Eisenegger previously described the universe as follows. First, green bonds, the most established form of ESG debt, will be used to finance environmentally friendly projects. There are also social bonds, sustainability bonds (which can combine green and social projects) and “blue” bonds, which focus on ocean conservation. Transition bonds are used to help companies move to a greener business model, while so-called sustainability bonds tend to come with an income payment tied to the issuer meeting certain investment targets. durability. Failure to meet these goals would tend to result in increased payouts to investors.