12 Oct 2020

The power of green bonds 

power of green

1.

The power of green bonds

One of the key pillars of our range of ESG funds targeting a specific impact is our green bonds funds - the Lyxor Green Bond ETF and the Lyxor ESG-screened Green Bond ETF. There are five key things to know about them:

  1. They are the first of their kind anywhere in the world
  2. Both offer broad exposure to EUR & USD-denominated investment-grade, liquid bonds issued solely for climate-friendly purposes by sovereigns, supranationals, development banks and corporates
  3. Both are indexed by Solactive, a leading German index provider
  4. Our flagship Green Bond ETF has been given the “Greenfin” label – a French government creation which guarantees investors that the financial products in which they invest effectively contribute to financing of the energy and ecological transition
  5. The ESG-screened Green Bond ETF excludes companies involved in fossil fuel and nuclear power, other controversial businesses and those operating in violation of the UN Global Compact, using data from leading ESG data provider Sustainalytics

In order to ensure that bonds are appropriate for inclusion in these ETFs, we have them independently verified by the Climate Bonds Initiative (CBI) - an international, investor-focused not-for-profit organisation. CBI is the world’s only organisation working solely on mobilising the $100 trillion bond market for climate change solutions. 

Watch the video explaining how the parent benchmark of our chosen index works

As part of its remit, the CBI issues certification and accreditations to green bonds. To be approved, bonds must comply with the Climate Bonds Standard, a framework which is fully aligned with (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 have been invested into energy, building and transportation projects.

Learn more from CBI

Watch the webinar on green bond pricing

2.

Clean, green and mainstream

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. That demand has been given an even greater boost recently.
The influential investor group Climate Action 100+ wrote to the largest greenhouse gas emitters in the world, urging them to put in place a “net-zero strategy” for 2050 or earlier. This ambition would effectively mean significantly reducing overall corporate emissions to zero, including ‘Scope 3’ emissions coming from their full value chain of activities. The European Commission also stepped up their game, announcing they would ramp up their target to cut emissions by 2030 to 55% from 40%. 

In fact, green bonds are increasingly one of the instruments of choice for central banks looking to support transition policies to achieve climate action and other environmental objectives. Sovereign issuance of green bonds has grown and diversified: 

  • Germany completed its first €6.6bn issuance in early September 2020. The country may raise up to €12bn in 2020
  • Sweden has already started its book-building process
  • Beyond the sovereigns, the EU has an ambitious green agenda under the European Green Deal investment plan and the €750bn post-Covid recovery fund, of which around 30% would be allocated to climate-friendly projects
  • An EU green bond programme could ultimately amount to around €225bn.

Green bonds financing eco-friendly projects could be well placed to benefit from this shift to decarbonisation. And in our view indices and ETFs are the best way of accessing them. Take a look at the Lyxor Green Bond Fund and the Lyxor ESG-screened Green Bond Fund today

3.

Further reading

Why passive for green bonds?

Learn the 5 reasons

Going green in fixed income

Read our expert view

Bonds to tackle climate change

Learn from Solactive 

Source: Lyxor International Asset Management, as at September 2020