Impact bonds are here to stay

Impact bonds are here to stay
Impact bonds are here to stay
Share post:

It started with the first climate awareness bonds of the European Investment Bank. Even back then, the issue proceeds were earmarked for explicitly sustainable projects of the supranational bank.

In recent years, the volume of such bonds has increased rapidly. The issue volume rose from USD 300bn in 2019 to USD 500bn in 2020. The capital markets have been inundated by green bonds, social bonds, sustainability bonds (i.e. projects that contain both environmental and socially sustainable aspects), and sustainability-linked bonds (i.e. the issue terms are linked to defined goals such as CO2 reduction, reduction of waste, or the maintenance of high ESG ratings from rating agencies). The umbrella term for all of these bonds is impact bonds – as they are meant to have an impact.

Impact bonds funnel capital in a targeted fashion towards the sustainable projects of companies or states, regions, or municipalities. The idea is to effect change within their activities.

In terms of rating, impact bonds have the same status as traditional bonds of the same issuer. The added advantage is the fact that prior to the bond issue, the issuer specifies clearly what the proceeds will be used for.

The range of activities of the issuers that qualify for such assets is wide, with hardly any area of private or public life being off limits.

The following are examples of projects funded by impact bonds:

  • Energy and energy efficiency

Renewable energy accounts for 20% of total energy production worldwide, with the pressure to resort to sustainable forms of energy production rising gradually. New technologies will become ever more relevant and transform the economy – e.g. e-motors, hydrogen, and biofuels. In Europe, about 1 million public charging stations are to be installed by 2025 in order to promote the use of electric vehicles. At the same time, the energy efficiency of appliances has to be improved.

  • Sustainable building and living

The construction of sustainable real estate that conserves resources, and the restoration of existing buildings.

  • Infrastructure and urban development

Today, 55% of all people live in cities. By 2050, this number will have increased to 70% due to rural exodus. Public infrastructure and mobility in the urban areas have to be upgraded significantly.

Other areas of importance are water supply and wastewater treatment, recycling and waste treatment, and agriculture, ecological systems, and biodiversity.

In addition, so-called Covid-19 Response Bonds (social bonds) have been issued from 2020 onwards. Their focus is the containment of the current pandemic, or on an operational level projects in the healthcare sector such as research, job creation, and reintegration/resocialisation.

Greenwashing is to be avoided at all costs. This means projects that don a green coat in order to just create an environmentally friendly and responsible image. Erste Asset Management operates credibly in the field of impact bonds. Our sustainability team scrutinises potential issuers thoroughly in order to guarantee they comply with the strict requirements of the sustainability approach and do not violate any criteria of exclusion.

The positive change created by impact bonds is measurable. We have the entire portfolio of our ERSTE RESPONSIBLE BOND GLOBAL IMPACT fund analysed on an annual basis. The breakdown of the projects into the 17 sustainable development goals (SDGs) yields crucial insights.

Legal note:
Prognoses are no reliable indicator for future performance.

DOSSIER

RESPOND TO THE ARTICLE

Leave a comment Required fields are marked with *

Your email address will not be published. Required fields are marked *

Legal disclaimer

This document is an advertisement. Unless indicated otherwise, source: Erste Asset Management GmbH. Our languages of communication are German and English.

The prospectus for UCITS (including any amendments) is published in Amtsblatt zur Wiener Zeitung in accordance with the provisions of the InvFG 2011 in the currently amended version. Information for Investors pursuant to § 21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in connection with the InvFG 2011. The fund prospectus, Information for Investors pursuant to § 21 AIFMG, and the key investor document/KID can be viewed in their latest versions at the web site www.erste-am.com within the section mandatory publications or obtained in their latest versions free of charge from the domicile of the management company and the domicile of the custodian bank. The exact date of the most recent publication of the fund prospectus, the languages in which the key investor document is available, and any additional locations where the documents can be obtained can be viewed on the web site www.erste-am.com. A summary of investor rights is available in German and English on the website www.erste-am.com/investor-rights as well as at the domicile of the management company.

The management company can decide to revoke the arrangements it has made for the distribution of unit certificates abroad, taking into account the regulatory requirements.

This document serves as additional information for our investors and is based on the knowledge of the staff responsible for preparing it at the time of preparation. Our analyses and conclusions are general in nature and do not take into account the individual needs of our investors in terms of earnings, taxation, and risk appetite. Past performance is not a reliable indicator of the future performance of a fund.