TLDR:
- Sustainable Fitch believes examining the impact of sustainable debt offers greater insight than just alignment with ESG metrics.
- Use-of-proceeds bonds dominate the sustainable bonds market in terms of issuance.
In a recent article by Environmental Finance, Nneka Chike-Obi and Gianluca Spinetti from Sustainable Fitch provide insights into the sustainable bonds market through a sustainability lens. The article discusses various key elements:
When it comes to assigning ESG ratings to use-of-proceeds bonds, the focus is on alignment with ICMA principles and the impact of the proceeds themselves, scored from a green, social, or sustainability perspective.
There are areas for improvement in the market, such as the split between new and existing projects and the lack of financing for certain categories like ecoefficiency and climate change adaptation.
Research by Sustainable Fitch highlighted concerns about ambition and materiality in sustainability-linked debt, as well as issues with target setting and disclosure.
Efforts to standardize ESG reporting are expected to make the relationship between labeled bonds and corporate strategy clearer, easing the burden on investors.
Europe generally leads in better disclosure ratings, driven by a longer history of sustainability reporting, with mandatory reporting requirements in some regions contributing to better performance.
Sustainable Fitch’s ESG ratings focus on the social and environmental impact of companies or projects, providing valuable data for investment decision-making, portfolio monitoring, and regulatory reporting.
Future developments for Sustainable Fitch’s ESG ratings product include expanding coverage to new regions and parts of the fixed income markets, as well as a focus on the net-zero space.
The article concludes with insights from Nneka Chike-Obi and Gianluca Spinetti on how their ESG ratings are utilized by clients and the importance of analyzing sustainability impact in the fixed income market.
