ESG in Fixed Income Europe 2020 conference round up

Channels: Debt, ESG, Green Bonds

Companies: GPIF, Nomura, EIB, World Bank, PG&E, State Street Global Advisors, WWF

People: Hiro Mizuno, Jarek Olszowka, Carlo Funk, Jochen Krimphoff, Aldo Romani

Environmental Finance's ESG in Fixed Income Europe 2020 virtual conference ended after two days of panels, speed networking sessions, and discussion groups.

The morning of day two was characterised by discussions around how recent events have crystalised the importance of considering environmental, social and governance (ESG) issues when both issuing and investing in bonds.

Hiro Mizuno, former-chief investment officer at the world's biggest pension fund, Japan's Government Pension Investment Fund, said pressure from asset owners, such as pension funds, and the collapse of California's PG&E had helped to change the investor narrative around ESG factors.

Quotes from day two:

Jarek Olszowka, head of sustainable financing at Nomura on social bonds: "I think now investors are becoming more familiar with what social bonds are, which 24 months ago I would say was not the case...Social bonds were just such a small subclass of the whole market. I think this is where the pandemic has really changed things."

Jochen Krimphoff, Deputy Director - Green Finance, World Wide Fund for Nature (WWF) & TEG Member on the EU Taxonomy: "I hope as much as half of the activities in the EU's Taxonomy will be labelled transition. Those advocating for a separate transition finance label are missing the point – the entire Taxonomy is about transition finance."

Carlo Funk, head of ESG investment strategy for EMEA at State Street Global Advisors on covid bonds: "What surprised me is the market generally oversubscribed to Covid bonds. Not just because investors think it's the right thing, but due to analysis of the financials. You very often arrive at a, 'why not?' moment."

Aldo Romani, Head of Sustainability Funding, EIB on the EU adding social criteria to the EU Taxonomy: "This is a substantial step forward, because all the advantages that are derived from this enabling framework that Europe has created – and is now increasingly taken as reference internationally – are being extended, with the same logic and with the same principles, to other areas that have been neglected thus far."

He said fixed income investors had previously struggled to see why ESG was relevant to the asset class because the short duration of their holdings meant the risks were unlikely to materialise before their bonds matured.

 

"PG&E was one particular event, after which fixed income managers took these risks more seriously. That changed people's behaviour," he said.

In the following session, experts from Japanese bank Nomura, the European Investment Bank (EIB) and World Bank discussed how the explosion of issuance of social bonds in the wake of the Covid-19 pandemic has highlighted the potential of these flexible instruments.

Jarek Olszowka, head of sustainable financing at Nomura also said social bonds are now on their radar of your "typical green bond buyer"– they are either now buying them or very familiar with them. "I think that is a permanent change from the last few months," he said.

Carlo Funk, head of ESG investment strategy for EMEA at State Street Global Advisors, built on the investor perspective, telling delegates that the Covid-19 pandemic has demonstrated that ESG criteria – and social criteria in particular – are absolutely financially material for companies.

Highlights of the first day included a lively debate on the use of proceeds model adopted by most green bonds. The subject of greenwashing was raised on a panel that discussed the role of climate transition finance. The EU taxonomy of sustainable activities was also described as a "powerful tool" for impact reporting, although concerns were raised regarding the available data needed to report in alignment with it.

A full round-up of day one of the event can be found here.

The panels from both days are available on the events platform for on-demand replay. Click here to register for the event and view the discussions.

Annabelle Palmer