Sustainability Community

 View Only

  • 1.  The $280 Billion Climate Bond Market That Isn't Working

    Posted 04-04-2024 10:05
      |   view attached

    Article from Bloomberg where, based on a CBI's study, just 14% of SLBs issued are aligned with the Paris Agreement target of limiting global warming to well under 2C from pre-industrial times.



    ------------------------------
    Jacopo Gadani
    Vice President ESG Solutions
    ------------------------------


  • 2.  RE: The $280 Billion Climate Bond Market That Isn't Working

    Posted 04-04-2024 10:43
    Dear Jacopo,


    I hope you are well

    Thank you very much for this

    It is true the SLB market can be improved - and there are many specialists working on this

    I would raise a few flags of caution with this analysis

    1.    The SLB market while environmental is not just about climate - it is also about water, pollution, waste, etc

    2.    The SLB market is not just about the environment also - is is also about the social aspect including health, education, employment, affordable housing, gender, etc. Many SLB's have dual targets - Environmental and Social

    3.    The SLB product is important particularly for the hard-to-abate sector who might not necessarily have projects for GSS
    bonds. It is a useful alternative option

    In my opinion, ICMA is a good resource for the SLB market

    Thank you for highlighting this. Certainly improvements are possible in the SLB market and tweaks are being worked on all the time. The Sustainability-Linked Loan market (LMA) are trying to innovate also  

    I hope this helps a bit



    Best regards
    Chris







    Original Message


  • 3.  RE: The $280 Billion Climate Bond Market That Isn't Working

    Posted 04-04-2024 13:07

    Dear Chris,

    Welcome and glad that you appreciated it :)

    I totally agree with you that SLBs are more than environmental / GHG emissions KPIs (as I have been structured some with clients in the social, water, safety etc.). I think CBI is mostly criticizing the fact that these products have good theoretical basis (as you saw as well for hard to abate sectors), but unfortunately in practice they have been used by some issuers (and mostly in the APAC region) with caveats and way to get around a credible and strong pathway.

    This is the same happening in the loans / SLL space as now, after the ramp up period following 2018-2019, there is now a lot of questions on the credibility of these instruments and more a focus towards qualty over quanitity. This is and will be more and more exacerbated by the increasing ESG regulations / scrunity by regulators so I am personally expecting the market becoming more a niche on quality issuers (similar to the transition bonds / space). 

    As last point, indeed ICMA is a good reference point (especially linking SLBs to the Climate Transition Finance Handbook) and is becoming a reference in the market.

    I would also like to highlight that EBRD and CBI issued a guideline for issuers (mostly in emerging markets) on how to issue bonds to finance a corporate climate transition: https://www.ebrd.com/news/events/financing-the-corporate-climate-transition-with-bonds-a-practical-guide-launch-.html 

    Regards,

    Jacopo



    ------------------------------
    Jacopo Gadani
    Vice President ESG Solutions
    ------------------------------

    Original Message


Related Content