The new european rules on transparency, taken together, represent a turning point for euro investment grade bonds (CSRD, SFDR and an EU green bond label). These rules could increase interest in sustainabilitybut will also increase the need for ain-depth fundamental analysis of credit, of careful risk assessment and active management of IG bond strategies. This is what emerges from the analysis of Let’s go, “Beyond the Green Bond: A Sustainable Future for IG Credit?” edited by Dany da Fonseca, Vincent Compiègne and Patrick Zeenni.
The “greeniums” are only worth a few basis points
The “greenium”or the premium granted to a green bond, he is modest. The reason – according to Candriam analysts – is partly due to the fact that the greater information provided by companies issuing green bonds offers investors the possibility of better assessing the overall sustainability of these issuers. This is particularly true for new “sustainable” bondsin which the broadcaster pays a lower coupon to achieve pre-declared corporate sustainability goals. Clearly, all bondholders (and all stakeholders) benefit from well-defined and clearly reported goals.
Sustainable performance
“With the greenium so narrow,” analysts point out, “we see no reason why a sustainable universe should underperform a broader bond benchmark. We believe it is the financial performance that of sustainability they will be soon equal in wallets Euro IG”.
The mandatory nature of the Green Asset Ratio (GAR)
The Green Asset Ratio (GAR) is an example of how green bonds are strengthening sustainability and pushing bond markets forward. The GAR is a new information obligation European for banks under the Non-Financial Reporting Directive. Quantifies the percentage of resources allocated to the environment providing a measurable metric for assessing and improving banks’ environmental impact. In the banking sector, the GAR can serve as a benchmark indicating a greater emphasis on sustainability. When combined with other key information such as exposure to carbon-intensive companies, high GAR values suggest a strong commitment to sustainability in asset allocation. It is appropriate track changes in GAR over time to monitor banks’ progress towards their sustainability goals. In general, the spread of sustainability performance measurement is beneficial because it provides a common terminology that makes information usable, transparent and comparable and reduces the risk of greenwashing, as it focuses on a technical and standardized measurement of impacts.
Sustainability Linked Bonds: A New Trend?
Green bonds and social bonds channel investments into specific sustainable environmental or social projects, but do not constitute a commitment at the issuer level. This limited scope has led to the new concept of Sustainability Linked Bond (SLB), for which the issuer undertakes to comply with ESG criteria for the company as a whole rather than just an individual project funded by the bond. In some sectors, capital projects are not as relevant, and an SLB is the only ESG bond an issuer can issue. The issuer chooses one or more ESG KPIs relevant, a time (horizon) and a goal for this KPI, also called Sustainability Performance Target (SPT). If the issuer fails to achieve the target at the specified benchmark, the issuer compensates the investor, usually through a coupon step-up until the bond’s maturity.
