Green Bonds – an asset class currently in trend
Munsbach, 6th April 2020 – The numbers show that green bonds are currently in trend. Today, the bonds included in the Barclays MSCI Green Bond Index are worth USD 400 billion, which represents an increase of approximately USD 150 billion over the previous year. For years now, we have seen sustained demand for green bonds, a development that, according to Dr. Volker Schmidt, Senior Portfolio Manager at ETHENEA Independent Investors S.A, is easy to explain: "The special feature of these bonds is that the money raised with them is channelled into environmentally-friendly projects. Given the current interest in climate change, this appeals to many investors who want to do their part for a more sustainable environment".
Given the rising demand, it is all the more important that the final deficiencies in the green bonds are quickly eliminated, says Schmidt. He also notes that: "The issuers are states and companies that do not necessarily have to be 'green'. In addition, there is still no uniform set of rules, as is usual for similar financial products.” With regard to the latter, first steps have already been taken: the International Capital Market Association (ICMA) has drawn up guidelines in the form of the Green Bond Principles (GBP) to promote standardisation. These are voluntary principles relating to the use of issue proceeds, the project selection process, and both the management of the proceeds and reporting on their use.
"Furthermore, it is recommended that external auditors be consulted. These should verify compliance with the selected guidelines regularly and independently. Meanwhile, there are now specialists who carry out a certification of green bond issuance or even issue a green bond rating," says Dr. Schmidt. The European Commission is also working on an EU Green Bond Standard and has recently published its so-called Usability Guide. "In doing so, it wants to prevent the current lack of standardisation from resulting in the goals associated with green bonds being undermined, also known as 'greenwashing'. This is the Commission's response to the fact that some issuers today still present themselves greener and more environmentally-friendly than they actually are," says Schmidt.
The motivation behind the purchase of green bonds is undoubtedly the desire to make a contribution to environmental protection. "Green bonds do not currently differ from conventional bonds in yield or default rate - but they do offer the opportunity to support environmentally-friendly projects and therefore make a contribution to the fight against climate change," concludes Schmidt.
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