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Sustainable Fixed Income: Green Bonds, SLBs, and Taxonomies

Theoretical Aspects of the Green Bond Market

Recent research confirms ESG criteria can have a significant effect on corporate credit risk, and improvements in ESG scores can lead to tighter credit spreads. But what constitutes a green bond, which corporate projects are eligible for green financing, and where can investors turn for information about the intersection of fixed income markets and sustainable finance? 

The EU Taxonomy Regulation is a great resource, but it is not the only taxonomical guide for sustainable finance that exists. In its paper, the ICMA describes several such guidelines and provides recommendations for policymakers and issuers alike. Other papers cover the differences between sustainability-linked bonds and green bonds, as well as the greenification of sovereign debt and a comparison of sovereign ESG data providers. Also, be sure to check out the upcoming ON24 webinar from BNP Paribas Asset Management on ‘Sustainability in Money Market Funds’, which airs on June 16. 

Solar Panels: Sustainable finance

Webinar: Sustainability in Money Market Funds (BNP Paribas AM, 2021)

This BNP Paribas Asset Management webinar covers some of the complexities involved in integrating ESG criteria into money market funds, ESG-focused regulatory updates, and related considerations for investors.

Two Become One: Combining corporate credit with ESG criteria (HSBC AM, May 2021)

For compliance reasons, this paper is only accessible in certain geographies

HSBC Asset Management describes several methods for constructing an ESG-centric corporate bond index from a parent index. The authors also compare the characteristics of the indices they construct using these different methods.

Filtering Shades of Green Via a Green Bond Framework (PGIM Fixed Income, 2021)

Outlining their proprietary Green Bond framework, PGIM Fixed Income shows how bonds can be assessed for impactfulness and credibility at both the security and issuer level.

Fixed Income Quarterly Report Q2 2021 (Federated Hermes)

The last section of this quarterly fixed income outlook paper from Federated Hermes is on sustainable finance. Specifically, it covers the relationship between ESG factors and credit default spreads.

Global Fixed Income Strategy (Invesco, May 2021)

For compliance reasons, this paper is only accessible in certain geographies

Invesco's latest strategic outlook for fixed income markets also includes sections on sustainability-linked bonds and ESG-oriented U.S. municipal bonds.

Green Gilts: An industry viewpoint (The Investment Association, 2021)

The Investment Association presents a brief position paper on Green Gilts, following the UK government's announcement in late 2020 of its plans to issue these bonds.

Demystifying Sovereign ESG (World Bank, 2021)

The World Bank Group compares the methodologies of leading sovereign ESG data providers, also discussing how ESG scores relate to country-specific economic metrics.

Overview and Recommendations for Sustainable Finance Taxonomies (ICMA, 2021)

This paper from ICMA provides an overview of the EU Taxonomy Regulation, China's Project Catalogue for sustainable finance, and other market-based taxonomies in order to guide policymakers and issuers on principles related to green and social bonds.

Sustainability-Linked Bonds: Viable alternative for green bonds? (NN IP, 2021)

Are sustainability-linked bonds (SLBs) viable structures for issuers unable to issue official 'green' bonds? Why should investors be wary of greenwashing by corporate issuers of SLBs?