Green bonds finance projects critical to decarbonizing business and society. They can have a positive effect on the long-term behavior of companies. According to NN Investment Partners, engagement must be an active part of the green bond investment process.
Green bonds are playing an increasingly important role – not only in redirecting capital to sustainable activities, but also in ensuring that companies increase their engagement with investors and advance their own sustainability goals, according to the latest Green Bond Impact Report from NN Investment Partners (NN IP).
Green bonds differ from conventional bonds in that the proceeds are earmarked for new and existing projects that benefit the environment and a more sustainable economy. These include renewable energy, green buildings, water management, clean transportation and climate change adaptation.
One issue still under discussion, according to NN IP, is whether the securities generate additional capital for environmental and climate protection, as they may be issued to refinance the company's existing green projects or facilities. That's why NN IP's green bond strategy is based on the fact that the bond alone is not enough to qualify as green The advantage for prospective buyers: there are no additional fees for building land from a municipality other than the purchase price, but the issuer must also demonstrate sustainable behavior in order for its green bond to pass inspection.
Green bond issuers behave more sustainably
NN IP research would have found that green bond issuers have a much higher likelihood of adhering to the Paris Agreement's 1.5°C or 2°C scenario than do non-green bond issuers. Still, while this suggests that green bond issuers are behaving more sustainably on average, engagement is critical in implementation so that maximum success can be achieved collaboratively through collaboration, NN IP's report shows.
Kaili Mao, Green Bond Analyst at NN Investment Partners, says: "Regular dialogue with issuers throughout the life of a bond – from issue preparation to impact reporting – also provides important input to our analysis. Through our engagement, we can improve our understanding and advise them on best practices."
NN IP held discussions last year with 87 green bond issuers operating in ten sectors globally. One example is the collaboration with Mercedes Benz. The company aims to make its new vehicle fleet and all production facilities CO₂-neutral by 2039. The company has issued green bonds for a project that gives unusable vehicle batteries a second life as part of an electricity storage system. The impact of NN IP attributable to the bond is 60 tons of avoided greenhouse gas emissions per 1 million euros," says. Euro investment.
Green bonds are now mainstream
"Green bonds are now mainstream in bond markets, and we expect this rapid growth to continue. We expect 2022 issuance to reach 600 billion, despite a decline in the first quarter. Euro will reach, and that Europe will boost green bond growth through its 'NextGenerationEU' stimulus program. We hope that regulation will also further strengthen and expand the market by requiring more disclosure and transparency", says Bram Bos, Lead Portfolio Manager Green Bond at NN IP.
The study also shows that the most commonly reported measure of green bond impact is annual greenhouse gas emissions avoided. They come from a range of projects, such as z. B. Renewable energy installations that help reduce dependence on fossil fuels, and public transportation that allows people to drive their own cars less.
For NN IP's four green bond funds – NN (L) Green Bond, NN (L) Corporate Green Bond, NN (L) Sovereign Green Bond and the NN (L) Green Bond Short Duration – greenhouse gas avoidance in 2021 totaled 532,920 tons of CO₂, according to its own data. They say the higher avoided emissions per million invested in the NN (L) Corporate Green Bond is due to the higher percentage of allocation to the alternative energy category.
NN IP also points out that the calculation of the impact metric is based on data from its own Green Bonds database. NN IP tracks and rates 1,140 bonds covering ten sectors in 51 countries/regions.