ESG in Fixed Income Global Series - Americas focus day roundup

Channels: Debt, ESG, Green Bonds

Companies: John D and Catherine T MacArthur Foundation, Xylem, Pimco, TD Securities, APG, Sustainalytics, AGF Investments, ‎ING, San Francisco Public Utilities Commission

People: Debra Schwartz, Claudia Toussaint, Samir Patel, Sean McCarthy, Amy West, Joshua Linder, Kevin Ranney, Andy Kochar, Ana Carolina Oliveira, Michael Brown

Environmental Finance's Americas focus day – the first of six events in the ESG in Fixed Income Global Series of conferences – ended after a day of panels, presentations and speed networking sessions.

Claudia Toussaint, the chief sustainability officer of Xylem and Samir Patel, Xylem's Treasurer, opened the day with a keynote address on their experience issuing a green bond for the first time. At $1 billion, it marked a sizeable first green bond issuance for the water technology company.

The afternoon keynote was delivered by Debra Schwartz, managing director of impact investments of the John D and Catherine T MacArthur Foundation – a first-time issuer of a social bond and one of eight US foundations to have issued social bonds in response to the Covid-19 crisis.

Schwartz told delegates that the "urgent crisis [of the Covid-19 pandemic] coupled with extraordinarily low-interest rates in the bond market made social bonds a good tool for the foundation".

The day also featured sessions on US green muni developments. Sean McCarthy, head of Pimco's municipal credit research team, said that US President Joe Biden's plans for an $2 trillion infrastructure investment programme could help double the size of the green US muni bond market.

He also added that some politicians are campaigning for a return of the Build America Bond (BAB) initiative, which was introduced on a temporary basis in 2009 to stimulate the economy.

Details are currently thin on the ground, conceded McCarthy, but he considered that the US muni bond market is "positioned to play a key part of the infrastructure programme", referring to it as a potential "supply event".

A panel on transition strategies and sustainable debt in the corporate sector argued that sustainability-linked bonds have proven more popular than transition bonds among companies looking to finance their transition. The panel also reiterated that transition bonds have a distinct role to play from the green and sustainability-linked cousins.

TD Securities sustainable finance global head Amy West said that carbon intensive industries are "arguably the most in need of support" from sustainable finance for their transition to a low-carbon future. Despite this, green finance has "not been the most accommodative" for these companies and they have proven to be largely absent from the green bond market.

Speaking on another session, Joshua Linder, senior credit analyst at investment manager APG said: "Our preference right now is to use the sustainability-linked bond market as the means for issuers to signal their transition strategy and goals.

"The transition label can be more confusing and can add unnecessary complexity to the market, given it's not as clearly defined."

Quotes from the conference

Kevin Ranney, sustainable finance solutions executive director at Sustainalytics: "There is no doubt we have seen less transition labelled issuance than we had expected. It is evident that many issuers that are engaged in activities that are good candidates for a transition labelled use of proceeds instrument are showing a preference for the sustainability-linked format."

Andy Kochar, global credit head and portfolio manager at AGF Investments: "We need to just leave [the green bond market] alone the way it is. That market works: it has got a good framework, and we have seen all the issuances that are coming our way from it. Market participants and everyone is on board. As we work on building this other [transition bond] market, let us not pull that away."

Ana Carolina Oliveira, ‎head of sustainable finance, Americas at ‎ING: "There seems to be some confusion amongst the issuer or the market in general about when the issuer or the issuance should be abiding to [the] guidelines [of the ICMA Climate Transition Finance Handbook]. I've also heard many people arguing that transition bonds are functioning as a separate product within the family of sustainable finance, when it's not necessarily how it was intended to be."

Debra Schwartz, managing director of impact investments, MacArthur Foundation: "[Bonds] were always there but they have typically been of limited use; you don't see a lot of taxable non-profit foundation bonds. This is a new tool, but it needs to be managed thoughtfully. It is not a silver bullet and eventually the bonds do have to be repaid, so there is risk to weigh there. However, in this instance of a historic crisis – that we are still in – greater action was urgently needed, and this was one way to add to the resources that we could put on the table."

Michael Brown, environmental finance manager at ‎San Francisco Public Utilities Commission: "[The government is] talking about bringing back something along the lines of [the Build America Bond (BAB) initiative] – I think that would be very exciting."

Register to watch the sessions from the Americas focus day and immediately gain access to the next event in the series. The next event will be the Innovation Showcase day on 6 May 2021.

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