2024 is a record year for them Green Bond emissionsthanks to higher-than-expected quantities, which offset the stagnation observed starting in 2022, largely attributed to a high interest rate environment, rather than a lower commitment to climate initiatives. This is what an analysis by Ronald Van Steenweghenfixed income manager of DPAMaccording to which the sector of green finance confirms rosy prospects, with a view to significant investments to address global climate challenges. But what characterizes green investments? And how do you select the best green bonds?
Green synonymous with asset quality
The “green bond” label continues to maintain the reputation of high-quality asset class both among investors and issuers. Recently, issuers in emissions-intensive sectors with significant green investments have increasingly preferred green bonds over sustainability-linked bonds, which are typically tied to behavior-based metrics. Europe the strength remains dominant in the global green bond marketled by large European issuers such as the European Union (EU), the European Investment Bank (EIB) and KfW.
However, the “greenium“, i.e. the premium that investors pay for green bonds compared to comparable conventional bonds, it has almost disappeared at an aggregate level, suggesting that green bonds can better integrate into traditional bond portfolios.
The impact of EU regulations
Despite the strong push coming from European legislation to promote sustainable finance, problems remain to be addressedimportant practical challenges. They were relieved doubts about capacity of recent regulatory initiatives to channel significant capital into low-emission investments. Finance at the service of the energy transition, in particular, remains a neglected topic in many of these regulatory innovations.
Inconsistent regulatory standards threaten to fragment the green bond market, fueling what is called “ESG fatigue“ And weakening interest of investors to finance a low-carbon economy. Ensuring consistent and comprehensive regulations will be essential to support the momentum of sustainable finance.
Selection criteria
For over five years DPAM employs a proprietary methodology to rigorously evaluate green bonds. The ESG team makes sure every bond is compliant with standards international, include a third party opinion and demonstrate commitment to a transparent allocation and to one reporting of the impact.
It then comes alongside qualitative evaluation of strategy and climate objectives of each issuer, noting any inconsistencies between stated goals and funding practices as potential areas of concern. The analysis – explains the expert – is based on three principles fundamentals: Materiality (projects aligned with risks and opportunities), Intentionality (ambitious and defined objectives), Additionality (projects must produce an environmental impact that goes beyond standard operations).
Only green bonds that meet all these internal evaluation criteria are included in the list of validated instrumentsensuring they are in line with international standards and with a commitment to meaningful impact.
