Rewarding those companies that may not strictly speaking qualify as environmental, social and governance (ESG) businesses, but which are pursuing ESG aims, is important for investors wishing to participate in the transition towards a more sustainable world, according to Ashley Schulten, Head of Responsible Investing, Global Fixed Income at Blackrock.
A green bond is a bond issued by any company which pledges that the money they raise will be ring-fenced on their balance sheet to be used for climate and environmental projects. “They allow investors to fund activities within those organisations that might normally be screened out through typical ESG criteria”, she said, during a Q&A with Tim Crockford of Hermes, chaired by Stonehage Fleming’s Mona Shah at the annual Stonehage Fleming Family Investment Conference.
Getting to those bonds and financing genuinely green projects relies on the issuers providing investors with quantifiable metrics of the benefits delivered. “You get a lot of transparency from the issuers about the projects they are funding”, said Ashley. “So, while we are always aware of the ESG ‘character’ of a company, the reporting that goes along with green bonds is extremely helpful. The development of stronger impact reporting will alleviate some of our concerns about greenwashing”.
The first green bond was issued in 2008 and, 11 years on, the market is coming of age. “As the market starts to mature, we are getting green bonds that can walk and talk like global aggregate-type products”, said Ashley. “With green bonds, investors can mimic a lot of the fixed income returns they would normally allocate to”.
As the market catches up with global expectations on sustainability, accessing green investment opportunities through bonds can be quite nuanced, explained Ashley: “Many businesses – like oil and gas companies - are going through a process of evolution. So, to categorise one company as green and another as not, is too simplistic.”
It is this shift towards positive practices that investors should encourage if they want to be part of the wider transition towards sustainability, urged Ashley. “We see many green projects within companies that are trying to change. We want to reward that.” Mona Shah manages the Stonehage Fleming Investment Management (UK) Global Sustainable Investment Portfolios.
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