Sustainability-linked bonds are proving more popular for carbon-intensive issuers than transition bonds, and experts are worried the 'transition' label is adding unnecessary confusion in the market, according to a panel speaking at Environmental Finance's Americas Focus day conference.
TD Securities sustainable finance global head Amy West said 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.
Guidelines were provided by the International Capital Market Association (ICMA) in 2020 for two instruments intended to help provide a route into the sustainable bond market for these companies: sustainability-linked bonds and transition bonds.
While the publication of the Sustainability Linked Bond Principles has sparked rising levels of issuance of these new instruments, the less prescriptive Climate Transition Finance Handbook has not had the same effect for transition bonds, the panel found.
"There is no doubt we have seen less transition labelled issuance than we had expected," said Sustainalytics sustainable finance solutions executive director Kevin Ranney. "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."
The discussion, which was moderated by gold sponsor TD Securities, was the first event in a series of six taking place in 2021 as part of Environmental Finance's ESG in Fixed Income Global Series.
A clip of the panel can be viewed below. The full panel discussion and the other discussions from the day are still available to view on the events platform.
Moderator: Amy West, Managing Director & Global Head of Sustainable Finance & Corporate Transitions, TD Securities
Panellists: Kevin Ranney, Executive Director of Sustainable Finance Solutions Projects, Sustainalytics
Andy Kochar, Vice President, Portfolio Manager & Head of Global Credit, AGF Investments
Max Chan, Vice President, Treasury & Enterprise Risk, Enbridge
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