The Carbon Transition Initiative aims to study the impact of climate change in emerging markets and identify best practices available to the investment community to help assess and manage climate- and transition-related risks and opportunities. To achieve this objective, the initiative focuses on a series of webinars complemented by investor research briefs on macro issues and sectors that are material to carbon transition.
The scope of this investor brief is three-fold:
● Understand the development of an emerging asset class — sustainable bonds — that enables financing of a low-carbon economy and aims to achieve positive environmental and social development outcomes;
● Identify challenges that are typical for these instruments; and
● Offer an investor checklist that can be referenced for due diligence purposes.
The capital markets segment of sustainable bonds is an emerging asset class, with its origins dating back to 2007 when the European Investment Bank issued the first Climate Awareness Bond to finance renewable energy and energy efficiency projects. Since then, the market has deepened to $3 trillion, as of 2021. We expect this asset class to grow; however, investors should be mindful of due diligence factors to evaluate sustainable bond instruments issued by three major issuers — corporates, sovereigns, and supranational organizations like The World Bank.
In this investor brief, we provide an overview of this asset sub-class and lay out important issues and recommendations investors should pay attention to given the surge in sustainable bond issuances.