Financial support for projects and activities that have a positive impact on the environment or society: this is the ambition of environmental, social and sustainable bonds. Commitments born of global awareness: Finance has a role to play in responding to major contemporary environmental and societal challenges.
Issued by companies as well as governments, these “secured” debts are increasingly successful. Explanation.
In response to a report published by the IPCC in 2007 that established a link between human activity and global warming, the European Investment Bank and the World Bank issued the first “green” bonds. The goal: to respond to this grand challenge through finance and the bond market.
Green bonds, designed to finance projects or activities that have a positive impact on the environment, focus on sectors such as renewable energy, low-emission transport, green buildings, water management or pollution control.
“Social” bonds aim to support projects and activities that respond to a social problem, in particular by combating poverty and inequality or for parity, diversity and social inclusion.
Finally, “sustainable” bonds correspond to bonds that finance projects that combine environmental and social issues, and the two are often linked.
A fast growing market
Despite their relative newness to the market, these environmental, social and sustainable bonds have managed to find a place for themselves. In 2021, almost $650 billion of such bonds were issued, which is twice as much as in 2019. This trend is confirmed in 2022. According to Moody’s, by the end of 2022, this market may reach 1,350 billion dollars..
While green bonds dominate with almost 60% of issuance in 2021, social and sustainable bonds are on the rise, a dynamic that is undoubtedly linked to the social issues that were and remain at the heart of the health care crisis.
Europe, the world leader in the field of green, social and sustainable bonds
The global market is largely dominated by Europe, which issued 56% of green bonds in 2021 (compared to 32% in 2017), 71% of social bonds and 60% of sustainable bonds.
A market supported by the interests of investors, mainly institutional investors, regulatory achievements (including the SFDR – Sustainable Finance Disclosure Regulation), as well as the commitment of the European Commission, which also intends to become a leader in sustainable finance. In October 2021, the European Union issued its the first green loan designed to finance European companies involved in the ecological transition.
Challenges and prospects
The growth in both supply and demand from investors for these bonds cannot be explained by their nature alone. These bonds allow issuers to finance projects and/or activities capable of confronting major environmental and social challenges of today and the future.
Investment decision on this topic
Precisely to meet the growing demand of investors, BNP Paribas Asset Management has expanded its range of debt ETFs and decided to launch an ETF that replicates an index called “JP Morgan ESG Green, Social, & Sustainability IG EUR Bond”. This index offers exposure to many sovereign, quasi-sovereign, corporate or supranational securities. It combines green bonds, social bonds and sustainability bonds.
No guarantee is given as to the validity of certain filters at any time, in particular as to the maintenance of the carbon footprint between two rebalances. Additional information about the index, its composition, calculation, methodology and rules for periodic monitoring and balance restoration is available at www.jpmorgan.com ›
Investments made in the fund are subject to market fluctuations and the risks inherent in investing in transferable securities. The value of investments and the income from them can go down as well as up, and investors may not get back the entire amount of their investment. The funds described represent a risk of capital loss. In the case of funds investing in foreign currencies, currency conversion is likely to affect the value of the investment, as the latter is subject to exchange rate fluctuations. For a more complete definition and description of the risks, please refer to the prospectus and KIID of the funds. Before subscribing, you should read the latest prospectus and KIID, which are available free of charge on our website. www.easy.bnpparibas.fr
 Source: Moody’s and Environmental Finance
 Source: Moody’s, ESG, Sustainable bonds to reach record $1.35 trillion in 2022
3 ESG: Social Environment and Governance