Green, Social and Sustainability Bonds
Climate change is one of the most critical issues facing society and immediate action is required if the most catastrophic effects are to be avoided. But while climate change and environmental challenges pose a direct risk to businesses, they also represent an unprecedented opportunity to take action.
One way that investors can do this is via green, social and sustainability bonds (GSSBs). Green bonds can help finance a myriad of different initiatives, including renewable energy, pollution prevention, energy efficiency and biodiversity preservation, among many others. Social bonds offer investment solutions where proceeds are directed to projects that seek a broader positive societal impact, such as social housing, microfinance, financing for small- and medium-sized enterprises, access to education, improvements in gender equality, support for employment in underserved regions and more. Sustainability bonds can fund both environmental and social projects and assets.
At AXA IM, we have developed a proprietary assessment framework for GSSBs, which aims to drive investments towards authentic and impactful green assets and social projects. It also aims to raise the integrity and transparency standards of the GSSB market and ensure that GSSB issuers are committed to fight climate change and to address sustainability challenges, and that this commitment is reflected in business practices and operation.
Our green bond framework
AXA IM’s GSSB assessment framework is made up of four pillars:
The environmental, social and governance (ESG) quality of the issuer
A firm needs to demonstrate minimum ESG commitments, as we want to ensure that corporations properly deal with environmental and social risks in the projects financed. We also want to ensure the green projects being financed are strategic activities. A coherence between the environmental strategy and issuance is therefore necessary.
The use of proceeds and the process for project selection
We believe that the use of proceeds of a green or social bond should reflect the issuer’s efforts towards improving the environment and society and its overall sustainability strategy. Full transparency regarding the projects financed and tracking the proceeds is essential.
The management of proceeds
An issuer must have sufficient guarantees in place to ensure the proceeds of the bond will effectively finance the eligible projects.
We pay particular attention to impact reporting, where both qualitative and quantitative indicators are expected. This allows us to demonstrate the positive impact of a bond on the environment and society.
Looking ahead – the continued evolution
AXA IM’s green, social and sustainability bond assessment frameworks are built to ensure that our expectations for such bonds are met, and we aim to select green bonds that are in line with our clients’ ambitious environmental strategies.
We are also looking forward to the continuing growth of this market. At AXA IM, we are committed to playing our part and to being a leading voice in the development of these asset classes. We aim to promote the integrity and quality of the market, which we hope will pave the way for even greater issuance, more take-up by investors, and ultimately a beneficial impact on people and planet.
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