The Growth of Sustainable Bonds
In 2007, the World Bank introduced the first sustainable bond. Now, 15 years later, we are seeing cumulative issuance of green bonds passing USD $1 trillion, driven by the pressing global impact of climate change.
Over 35% of assets under management have investments which include environmental, social, and governance (ESG) considerations. It is crucial to understand what role sustainable bonds play in a portfolio. Equally important is having access to the right data to facilitate this integration.
The Role of GSS Bonds in Fixed Income Portfolios
Fixed income portfolios traditionally focus on generating income, safeguarding capital, and buffering against inflation. Incorporating green, social, and sustainability-linked (GSS) bonds into a diversified portfolio not only potentially elevates performance, especially in specific market scenarios, but it also holds an intrinsic value to measure the actual impact of an investment.
An increasing number of governments are instituting taxonomies that mandate corporate participation in GSS bond investing, often requiring companies to ensure that a specified percentage of their investments align with sustainable criteria. The EU Taxonomy Regulation, for example, creates mandatory disclosure obligations on some European companies and investors, while also establishing detailed criteria and performance thresholds to classify green activities in different sectors.
And while Europe is typically spotlighted for its unified policy view of ESG, others are following suit. Regulators, like the U.S. Securities and Exchange Commission, are recalibrating to create new standards for ESG disclosure and standardization. This includes enhancing disclosures by funds and advisers to provide more specific disclosures in fund prospectuses, annual reports, and adviser brochures based on the ESG strategies they pursue.
“ESG encompasses a wide variety of investments and strategies. I think investors should be able to drill down to see what’s under the hood of these strategies.”
Gary Gensler, SEC Chair
The Structure of GSS Bonds
Let’s break down the distinct categories of sustainable financing instruments, ranging from Use-of-Proceeds (UoPs) to Sustainability-Linked Bonds (SLBs). Each category is uniquely tailored to address environmental and socio-economic objectives in varying capacities.
| Use-of-Proceeds (UoPs) | Sustainability-Linked Bonds (SLBs) | ||
| Sustainability Bonds | Green Bonds | Social Bonds | |
| Loans used to finance projects that bring clear environmental and socio-economic benefits. | Loans used to finance projects and activities that benefit the environment. | Loans used to finance projects achieving positive socio-economic outcomes, with a neutral or positive impact on the environment. | Used to finance general corporate purposes. Its characteristics (e.g. coupon rates) depend on the issuers’ ability to meet a pre-defined set of sustainability performance targets. |
The quality of the issuer and ESG factors are critical considerations when investing. With GSS bonds, investors have a quick and easy way to identify financing that will go toward environmental solutions or social initiatives. Including GSS bonds in your fixed income portfolio will provide better clarity into the performance of your investments.
Areas of eligible projects include, but are not limited to:
| Renewable Energy | Energy Efficiency | Terrestrial and Aquatic Biodiversity Conservation | Green Buildings |
| Includes production, transmission, appliances, and products. | Such as in new and refurbished buildings, energy storage, district heating, smart grids, appliances, and products. | Includes the protection of coastal, marine and watershed environments. | Buildings which meet regional, national, or internationally recognised standards or certifications. |
Using Bond-Level Data in your Decision Making
When managing assets in sustainable investments, being able to quantify and convey the impact of your portfolio holdings is key. To do this, you need granular insights on individual use-of-proceeds bonds, rather than just issuer-level information.
The Nasdaq Sustainable Bond Network, our centralized portal connecting investors to sustainable investments matching their sustainability goals, has shifted from a broad issuer-centric view to a bond-specific perspective. Our network is unique because no other market participant provides similar global green, social, and sustainable bond coverage.
Based on the feedback that we have received, bond level data provides investors increased transparency around the actual impact of their bond investments.
Nasdaq Sustainable Bond Network is brilliant in collating all the data from allocation and impact reports and then presenting it so that we can easily understand where our money has been invested and the impact of those projects.
Karin Beltzér, Head of Fixed Income at Swedbank Robur
For the first time, we can present aggregated impact data in our ownership report. We can actually see how much CO2 emissions that we have saved by financing green bonds.
Rebecca Rehn, Head of ESG Analysis at Alecta
With bond-level data, you can:
Analyze individual bonds as well as their unique contribution to the overall bond portfolio: Monitor allocation and impact for each security individually, and even make comparisons across bonds issued by the same issuer.
Accurately measure impact in metric values: Every bond might finance a different project with distinct environmental or social impacts. Bond-level data provides granularity on these impacts based on individual project categories, allowing you to gauge the allocation of funds, and the real-world influence of your investments through impact KPIs.
Create transparency with stakeholders: The depth of information from bond-level data positions you to communicate more transparently with stakeholders, whether they’re investors seeking clarity or internal teams aiming for alignment on investment decisions.
In-Depth Allocation
Our portal calculates the share of the portfolios committed to Sustainable Development Goals, Project Categories, and Sectors.
The aggregated impact metric can be viewed at two different levels:
| Level | Example |
| Issuer level, with additional details on underlying KPIs. | Total GHG Savings per issuer. |
| Bond level, with additional details on underlying KPIs. | Total GHG Savings per bond. |
At a more granular level, you can have access to:
| Level | Example |
| KPI-level, with additional details on underlying project categories. | Total Energy Use Avoidance from Green Buildings. |
| Unit of measurement level, with additional details on underlying project categories. | Total GHG Savings. |
Join the Nasdaq Sustainable Bond Network
The Nasdaq Sustainable Bond Network continues to evolve with changes in the industry. Adding bond-level data is just one enhancement towards creating a transparent platform that empowers investors to evaluate impact. As the reporting requirements are increasing globally, Nasdaq Sustainable Bond Network provides actual impact and allocation reporting for both individual bond and portfolio-level bond analysis.
Nasdaq® is a registered trademark of Nasdaq, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. Neither Nasdaq, Inc. nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding Nasdaq-listed companies or Nasdaq proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.
