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Issuance has been rising of late, and 2021 has already been a record-breaking year.

By Agathe Foussard, CFA, Fixed Income Portfolio Manager and Felipe Gordillo Buitrago, Senior ESG Analyst, Mirova Portfolio Management Company

The world was alerted to climate and environmental issues more than 30 years ago by the IPCC1, and governments have since proposed a variety of measures with the goal of reaching carbon neutrality and limiting global warming to 1.5 degrees celsius.2

Yet we’re far from this target. Time is running out, it has therefore become a necessity to undertake an industrial and environmental revolution to accelerate the environmental and energy transition

Everyone has a role to play, finance and Fixed Income being no exception. Through green and sustainable bond issuances, investors can contribute to the low-carbon transition while making a twofold impact: financial and environmental. Such is the purpose of the Mirova Global Green Bond3 investment approach.

A Green Bond Revolution

After a relatively slow start, the green bond revolution is gaining steam. 2021 has already been a record-breaking year, with issuance reaching $450 billion at the end of September4.

This boom can be explained firstly by the growing number of sovereign bond issuances – Italy, Spain, the United Kingdom and the European Union have all issued their first green bonds –, and secondly by the acceleration in the issuing activity of energy generation companies, real estate firms and industrial manufacturers, most notably in the automotive sector.

The green and sustainable bond revolution is fully underway, making these instruments a fast-growing market.

50 Shades of Green

The market faces two main challenges. First, the regulatory framework is still a work-in-progress. Indeed, any company can self-label as green their current bonds program. Many frameworks exist, but there is currently no universal label that sets standards for positive environmental and/or sustainable impact.

Secondly, there is a lack of traceability and transparency on the use of the proceeds. Although there’s a general commitment made by the issuer with regards to how the money will be spent, it’s often hard to track.

These two factors may lead to a lack of impact and consistency in green bond investing. The EU’s new green taxonomy is a step in the right direction, but there is still room for progress. In a market that can take 50 shades of green, investors should make sure they are partnering with a true pioneer in green bond investing.

A Pioneer in Green Bonds Investing

Mirova was among the first asset managers to invest in green and sustainable bonds (in 2012) and has introduced a unique and integrated investment process, aiming to deliver financial performance and maximize environmental impact.

To do so, Mirova has developed a methodology to analyze and assess programs for green bond issuances – but also for social and sustainable bonds – which draws the framework of the «Green Bond Principles.»5 This entails a high degree of selectivity: at the end of December 2020, 45 percent6 of these issues were excluded from the investment universe of the Mirova Global Green Bond investment approach.

Mirova’s approach is founded upon this two-pronged challenge, both in the methodology applied to analyze and assess green bond programs and through active engagement throughout the lifecycle of the green bond.

The analysis and assessment of green bond programs focus on the integrity and ambition of the project. Mirova examines the relevance and the alignment of these projects with the Sustainable Development Goals (SDGs).

But that’s not all: the environmental and/social impacts of the project must be sufficiently clear and ambitious to ensure significant progress can be made towards reaching the stated objective. Similarly, the risks associated with environmental projects must be minimized: initiatives creating positive environmental benefits may be responsible for generating negative environmental or social externalities.

Traceability is an also important factor, as by their very nature, the proceeds of green bonds are «tracked»: particular attention is therefore paid to ensure that capital flows are channeled towards green projects, for the entire duration of the bond’s investment cycle. Mirova also makes sure that the industrial project that receives funding is aligned with the challenges faced by the industry in which the issuer operates. Furthermore, Mirova pays close attention to the level of detail and transparency of the annual impact reporting provided for each project, including clearly identified performance indicators and result.

Furthermore, in order to pre-empt any greenwashing risks, Mirova has drawn up a formal engagement strategy that covers the entire investment cycle of a green bond.

In a nutshell, investing in green bonds with Mirova can offer investors to channel their savings towards solutions that may combine positive impacts and financial returns.

  •  Read more about Mirova here

1 The First Assessment Report (FAR) of the Intergovernmental Panel on Climate Change (IPCC) (1988)
2 The Paris Agreement’s central aim is to strengthen the global response to the threat of climate change by keeping a global temperature rise this century well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5°C.
3 Each investment includes risks, including capital loss and sustainability.
4 Source: Environmental Finance, Mirova.
5 International Capital Market Association, https://www.icmagroup.org/sustainable-finance/the-principles-guidelines-and-handbooks/green-bond-principles-gbp/6 Source: Mirova

The information provided reflects Mirova’s opinion / the situation as of the date of this document and are subject to change without notice. All investing involves risk, including the risk of capital loss. This material is provided for informational purposes only and should not be construed as investment advice, or a recommendation or an offer to buy or to sell any security, or an offer of services. Investors should consider the investment objectives, risks and expenses of any investment carefully before investing. The views and opinions expressed are as of the date indicated, and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted. In Switzerland: This material is provided by Natixis Investment Managers, Switzerland Sàrl, Rue du Vieux Collège 10, 1204 Geneva, Switzerland or its representative office in Zurich, Schweizergasse 6, 8001 Zürich. MIROVA Portfolio management company French Public Limited liability company Regulated by AMF under n GP 02 014 RCS Paris n 394 648 216 Registered Office 59 Avenue Pierre Mendes France 75013 Paris. Mirova is an affiliate of Natixis Investment Managers