A number of 'Sustainable Development Goal (SDG) bonds' have been issued in recent years. Alice Val argues that issuers should not be tempted to target too many goals in their issues
The United Nation's Sustainable Development Goals (SDGs) provide a framework of 17 aspirational and ambitious goals that tackle some of the world's most serious environmental and social issues to be achieved by 2030.
As it is urgently necessary to obtain the means to finance these aspirations, we believe it is imperative that the financial and corporate sectors take up this topic.
The SDGs not only give a logical framework for asset owners to work from but they have also provided the impetus to take action.
It is not surprising to see 'SDG bonds' appearing in the wake of green and social bonds.
At AXA Investment Managers, we invest in SDG bonds, providing they respect the Green and Social Bond Principles and fit in with AXA IM's own qualitative analysis proprietary framework, which includes a global coherence between the issuer's environmental and social strategies and the financed projects.
We favour the emergence of bonds that target specific thematics.
We also believe that a single standardised framework would be more understandable for the market.
Green and social bonds are more transparent and give more context than 'SDG bonds'.
Hence, we would recommend that issuers use existing frameworks developed around green, social and sustainability bonds rather than developing alternative frameworks.
One of the biggest improvements of the green and social bond market is its transparency, which AXA IM strongly supports.
Green and social bonds are more transparent and give more context than 'SDG bonds'.
With the emergence of new instruments, such as SDG bonds, particular attention should be paid to ensuring that issuers do not target too many goals.
SDG bonds targeting just a few SDGs have the potential to be interesting if coupled with relevant impact indicators.
There is plenty of room for improvement around adequate impact key performance indicators.
At AXA IM, we are looking for bonds from issuers that have worked hard to define a few clearly identified goals and demonstrate their ability to measure the success of the projects.
Looking at the green and social bond market more broadly, an increasing number of issuers disclose the link between projects financed and their contribution to various SDGs.
At AXA IM, we fully support this kind of reporting, which can be very useful, as the SDGs were designed to be easily comprehended and understood by all...
if they are not to be a mere box ticking exercise.
Therefore, we encourage the integration of the SDGs more systematically in green or social bond impact reports but we recommend being selective by focusing only on the most material SDGs depending on the projects financed.
Green and social bonds are more transparent and give more context than 'SDG bonds'.
In this way, we have developed internally a strict mapping between projects financed by green/social bonds and the SDGs.
Overall, we see demand rising from our clients to develop impactful solutions and we welcome initiatives that lead to more 'use of proceeds' bond issuances.
But we encourage issuers to stick to a standardised framework and thus focus on enhancing transparency around the use and management of proceeds; sharing information on the methodologies used for calculating impact indicators; and widening the scope of the projects financed to accentuate corporate level environmental strategies with ambitious and clear targets.
Alice Val is a responsible investment analyst at AXA Investment Managers.