The summer of 2022 was challenging for Europe as heat waves swept the region, making the Paris Agreement goals of reducing greenhouse gas emissions more important than ever. Natixis Investment Managers says that sustainable finance will help in accelerating the energy transition, with green bonds emerging as a key investment vehicle for improving the energy supply mix in Europe considering the crisis brought on by the Russia-Ukraine war.
“Green bonds are arguably one of the best fixed-income vehicles available to accelerate the low-carbon transition. They are comparable to conventional market bonds in that an issuer of a green bond pays the principal and interest (coupon) back to the lender over a designated period, ” said Bertrand Rocher, Head of Credit Research at Mirova, a unit of Natixis Investment Managers.
The investment manager talks about the structure of green bonds and lists details about issuers of sustainable debt assets. Mirova takes the example of Apple, which issued the largest-ever corporate green bond worth $1.5 bn in 2016.
“Companies that issue green bonds see a huge opportunity to raise finance that can transform old, inefficient energy infrastructure into efficient and environmentally friendly practices. For investors, it means being a stakeholder in the process in exchange for taking on the risk of capital loss,” as per Marc Briand, Head of Fixed Income, Mirova.
The war in Ukraine has reduced issuances of such bonds as rising high volatility and rising interest rates dampen sentiment. However, the transparency in such bonds is higher compared to others due to accessible metrics such as reduced CO2, or the amount of clean energy produced. “This certainly makes green bonds more traceable than traditional bonds,” says Mirova.
The question is whether all such bonds are beneficial, to which the investment manager says that that is not the case, and investors must seek information to assess the positive environmental impact of their investments.
“The rapid growth of green bonds shows investors are seizing the opportunity to drive the energy transition. But they are becoming more judicious and discerning too, as they attune to signs of ‘greenwashing,” says Rocher.
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