HSBC Global Wants to Know How Green Your Bonds Really Are

HSBC Global Wants to Know Just How Green Your Bonds Really Are

William Shaw

22 Sep 2020, 08:34 PM IST

(Bloomberg) -- With worldwide green debt spiraling toward the $1 trillion mark, HSBC Global Asset Management is keen to check exactly what it’s buying.

The money manager is challenging companies and governments to ensure they have proper environmental policies with carbon reduction targets, and aren’t simply issuing green bonds opportunistically, according to Xavier Baraton, global chief investment officer for fixed income, private debt and alternatives.

“We write to companies on a regular basis to express our concern with decisions they’ve made, on governance, on the environment,” he said in an interview. “We tackle an ESG topic in more than 75% of our regular interactions with companies. It’s really become the bread and butter of the credit analysts’ work.”

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Companies have been taking advantage of a boom in investment interest that factors in environmental, social or governance factors to make this the busiest month for such issuance ever. JPMorgan Chase & Co., the biggest U.S. bank by assets, issued debt to finance environmentally friendly projects for the first time, while Saudi Electricity Co. sold the first green bond from the world’s largest oil-exporting nation.

And in a boost to sustainability-linked finance, European Central Bank said Tuesday it will start accepting bonds linked to environmental goals as part of President Christine Lagarde’s green agenda.

Behind the Label

Yet HSBC Global’s caution underscores wider concern about just how green some securities really are. Researchers with the Bank for International Settlements have warned that companies that issue the debt aren’t necessarily reducing their carbon intensity -- the ratio of carbon emissions to revenue -- and called for firms to have an environmental rating to improve transparency.

Lawyers say many green bonds are defined by their “use of proceeds,” which means they must spend the specific funds on environmental projects without an obligation to clean up their act more broadly. That’s where pressure from the likes of HSBC Global comes into play.

Read More:
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The EU’s green bonds are likely to match high environmental standards but investors in general should pay attention to a bond’s exact characteristics, Baraton said. In emerging markets, it’s important to judge whether there’s the right alignment between the green bond and what it genuinely serves and is meant to fund, as well as the commitment of the issuer itself.

“The challenge with green bonds, the majority of the issuance is really fine and serving good causes, but your own reputation can be really tarnished if you’re not careful and buy bonds that are a bit too close to green washing.”