Labelled bonds — such as green, blue, social, sustainable, transition and sustainability-linked bonds — which promote sustainability and better Environmental, Social and Governance (ESG) performance, are becoming an important part of financial markets and highlight the key role debt markets can play in funding and inspiring companies to contribute to sustainability.
In this paper, Adrienn Sarandi, Director of Fixed Income ESG, provides the background on labelled bonds and explores the key considerations associated with their use.
- As an increasing number of investors look to align their portfolios with sustainability goals globally, it is important to understand how labelled bonds may help to achieve ESG as well as risk-return objectives in portfolios.
- Green, sustainable or sustainability-linked bonds (SLBs) for example can help mitigate climate change risks as well as have the potential to generate attractive risk-adjusted returns. Social bonds on the other hand can finance new and existing projects with positive social outcomes.
- Hence, labelled bonds can help align investors’ asset allocations with their ESG and performance objectives.