SUMMARY
Green, social, sustainability, blue and sustainability-linked bonds can be an integral component of an investor’s fixed income allocation.
- Many of the larger financial services firms offer sustainable bonds and are at the forefront of new and exciting opportunities to help finance innovation that challenges the status quo and seeks to transform our world for the better.
- Although corporate and financial bond issuance in the broader fixed income market declined 13% in the first quarter year-over-year, sustainable bond issuance had a strong first quarter at $285 billion, up 4% year-over-year. It was one of its busiest quarters on record as borrowers, including debt issuers, capitalized on favorable market conditions before the recent banking turmoil briefly shut debt markets.
- During the global pandemic, some public sector companies financed their response to COVID19 through social bond issuance. They were used to fund medical research, healthcare services and equipment or support initiatives that helped alleviate unemployment resulting from the pandemic. An example is the $100 million World Bank UNICEF (United Nations Children’s Fund) Bond.
- In 2022, the World Bank issued another innovative structure, the $150 million Wildlife Conservation Bond. Instead of going to the investor, proceeds from the bond are allocated to conservation efforts aimed at protecting and increasing the population of black rhinos in South Africa.
- When markets reversed course in October, macroeconomic conditions and limited availability may have contributed to a sustainable bond rebound late last year. Driven by more demand for sustainable instruments particularly in Europe, sustainable bonds outperformed traditional bonds year-to-date through March 2023.
- Although still in its early development stage, one potential opportunity for issuers is harnessing the voluntary carbon market to crowd in more investors. Today, issuers of bonds that finance projects and initiatives that generate carbon offsets can sell voluntary carbon units (VCUs) in the voluntary carbon market. Each VCU represents the reduction or removal of one tonne of carbon dioxide equivalent achieved by the initiative or project funded by the bond issuance.
