It’s undeniable. Shifting the global trillions invested in conventional bonds towards more sustainable exposures today would have a significant impact on the world we will be living in tomorrow.
Climate change, and its resulting exponential impacts and inequalities, are the greatest risks to our long-lasting financial stability. The Covid-19 pandemic has made the case – far better than we ever could – for how dependent we are on natural systems.
Green bonds are great ways of making a positive contribution to the environment, as their proceeds are earmarked solely for eco-friendly projects and assets. The importance of adding investments which take direct climate action, like our SFDR 9-approved green bond ETFs, to your portfolios cannot be overstated. Here’s what you need to know:
Watch ‘Why green bond ETFs are ideal for climate action’, featuring François Millet
The CBI issues certifications and accreditations to green bonds. To be approved, bonds must comply with the Climate Bonds Standard, a framework which is fully aligned to (and to some extent exceeds) the Green Bonds Principles of the International Capital Market Association. It specifies a detailed taxonomy of eligible projects and assets, plus rigorous pre- and post-issuance requirements.
In 2020 for example, most of the proceeds from green bonds were invested into energy, green building and clean transportation projects.
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Demand for green bond funds has grown significantly as attention has turned to climate and the necessity of hitting the Paris Agreement’s 1.5°C warming target. Since then, green bonds have become one of the instruments of choice for governmental and corporate entities looking to find ways to achieve their climate action and other environmental objectives. The new has become the norm with sovereign issuance of green bonds growing and diversifying as these 2020 highlights show:
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One of the key aspects of green bonds as far as the CBI is concerned is clarity of reporting. It’s what allows us to show you exactly what your money achieved, or could have helped achieve, by investing in our €500m+ Green Bond ETF last year. Here are three highlights:*
You can read the full impact report here.
Watch ‘The impact of CLIM in 2020’ to see how our Green Bond ETF made a difference
We may have lost the first half of the fight against climate change, but we still have time to turn things around. It’s no secret as to what we need to do, and we can start applying much of our knowledge today if we can just find the money for it.
The good news is that we have more capital available on the planet now than ever before and large slabs of it are sitting in negative or zero interest rate bonds. That is no way to finance the future. Shifting that capital into places where it can get some kind of return – which is likely to be green over the long term – makes sense for every investor, no matter the size of their allocation.
Source: Lyxor International Asset Management, the Climate Bonds Initiative, as at April 2021
* These indicators concern 47% of the portfolio weight, as at 08/12/2021.
** Source of the conversion tool: https://www.epa.gov/energy/greenhouse-gas-equivalencies-calculator