Visa Inc. and Consolidated Edison Inc. are among a growing list of blue-chip U.S. companies that are being told their green bond offerings fall short.
For the first time in its 13-year history, the Climate Bonds Initiative (CBI), an influential London-based research organization focused on the $4 trillion ethical debt market, is publicly identifying more issuers who fail to meet its standards for environmental impact or transparency. Along with Visa and Con Edison, Boston Properties Inc. bonds also failed. So did a handful of dollar-denominated bonds issued by foreign corporations and municipalities.
It is a consequent snub. Many global green bond indices, including those designed by Solactive AG, S&P Global Inc., FTSE Russell and JPMorgan Chase & Co., rely on CBI’s list of approved green bonds as a preliminary filter for investment decisions. ‘investment.
For index providers and the products that track them, CBI provides a first line of defense against accusations of greenwashing. The organization’s database includes $1.6 trillion worth of debt issues, but only those who support CBI-approved projects will have a significant, positive impact on the environment. Others are left out because they don’t give enough information about how the money will be used to make a decision one way or the other.
Companies around the world are tapping into the global green bond market at a record pace to help reduce their carbon footprint. Global debt issuance hit a record $515 billion last year, according to data compiled by Bloomberg. CBI estimates that annual sales could reach between $900 billion and $1 trillion by the end of this year, and up to $5 trillion by 2025.
Take Visa, which became the first consumer finance company to issue debt to fund eco-friendly projects in 2020, raising $3.25 billion in a three-part transaction. The deal included a green tranche to help fund projects such as green buildings, renewable energy, sustainable water and wastewater management, and projects that support sustainable living behaviors. CBI ruled out the bonds due to insufficient information regarding building improvement effectiveness, clean transportation criteria, proposed training, and potential hydropower parameters.
A Visa representative referenced the company’s green bond report released in July 2021 and declined further comment. Proceeds from ticket sales primarily funded the design, construction and operation of green buildings, as well as energy-efficient upgrades to its data centers and offices, among other initiatives, according to the report.
Boston Properties’ $850 million green bonds maturing in 2032 are also excluded due to insufficient disclosure regarding efficiency improvement targets. For retrofits to older buildings, CBI said 20% efficiency improvements are required for the bonds to qualify. Helen Han, Boston Properties’ vice president of investor relations, said in an email response to questions that the company had completed its “attestation for use of proceeds” of the obligations, issued with the environmental reports, social and governance 2021 of the company. (ESG) last month.
Consolidated Edison’s $1.6 billion two-part green bonds, which target projects such as energy efficiency and clean transportation, are also on the list. The CBI said it ruled out obligations for gas metering, adding it supported “the status quo for fossil gas”. The utility said in an emailed statement that proceeds from the agreement are funding investments that will contribute to projects envisioned by the utility’s clean energy commitment.
These exclusions underscore how the sustainable debt market is “somewhat subjective,” said Stephen Liberatore, head of ESG and impact for global fixed income at Nuveen, which oversees $1.2 trillion. dollars in the world. Investors need to understand what they are investing in and the indices they are using, as everyone’s approach is a little different.
“It’s always an education process,” he says. “When you introduce ‘impact’, it also starts to be representative of the outcome areas where you’re trying to direct capital. So you really need to understand them as well to make sure they’re all relevant to what you’re trying to accomplish.
Still, many investors view CBI as an expert in sustainable finance, and landing on the exclusion list could raise questions, he said. Nuveen manages approximately $18 billion in sustainable assets, including green, social and sustainability bonds. Liberatore said CBI data is a factor in his assessment, but he relies on his internal screening process.
There are other broader benchmarks, such as the Bloomberg Global Aggregate Index, which do not use the CBI database. This mitigates the material impact on price and spread of a CBI green exclusion, according to Vishal Khanduja, fixed income portfolio manager at Morgan Stanley Investment Management. He predicts that will change as the number of exchange-traded funds (ETFs) and other passive products that track green indices continues to grow with the market, forcing issuers to become “much more aware” of the how the products are used and declared. on, he said.
“These agencies are ultimately going to have an effect on the cost of capital for the issuer,” said Khanduja, who manages the Calvert Green Bond Fund.