April 2024 / FIXED INCOME
Why is it important to measure the impact of a blue bond?
Blue bonds need to be evaluated with additional rigor to mitigate against bluewashing risks.
Key Insights
- Like other sustainable bonds, blue bonds need to be evaluated differently.
- There are four key areas that are important to consider when measuring the authenticity and impact of a blue bond, including the issuer’s sustainable Investing profile, alignment with industry standards, creditability of the bond, and post-issuance reporting.
- This approach should help identify and mitigate against bluewashing, which is the inadvertent or intentional misrepresentation of the blue and broader sustainability characteristics of a financial product and/or of the sustainable commitments and/or achievements of an issuer.
Transcript
At T. Rowe Price, we believe that, like sustainable bonds, blue bonds—which are, of course, a subset of sustainable bonds—require an additional element of evaluation and rigor.
There are four elements that we believe are important to consider in the evaluation and analysis of blue bonds.
So, the first one is the sustainable investing profile of the issuer itself. And that's absolutely critical because you need to see congruence with the issuer’s ambition, its targets, its overall goals, and the actual blue bond that it's issuing. That's the first element.
The second element has to do with industry standards. And here we're looking for real ambition, best practice ambition, and alignment with industry standards.
And the third element has to do with bond credibility. And here, we are looking for clear evidence of ambition and credibility of the bond itself and the deployment of proceeds, and we're looking for it over the life of the bond.
The fourth and final element we'll talk about today is the post-issuance reporting. And here we are looking for very clear reporting around the actual distribution of capital into blue economy elements. And that's very important. In addition, we are looking for post-issuance impact reporting, and here we would like to see quantifiable, tangible evidence of that coming through over the life of the bond.
So, if you think about the four elements we've talked about and why we focus on them at T. Rowe, one of the things we believe they will help us do is identify and potentially mitigate against greenwashing.
In the blue bond sphere, this is known as bluewashing, and this refers to a scenario where a financial product potentially overstates its own sustainability impact and outcomes and/or the issuer overstates—again focused on the blue economy—its own sustainability ambitions, targets, and outcomes.
So at T. Rowe Price, we're very excited about the potential opportunity for the blue bond market. We look at the parallel for the green bond market, and of course, blue bonds are a subset of green bonds. But we've seen the green bond market go from a very nascent asset class 10 to 15 years ago to being well over USD 2 trillion,* and that's on data out of the Climate Bonds Initiative.
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April 2024 / EQUITIES & FIXED INCOME
Tongai Kunorubwe is the head of environmental, social, and governance (ESG) in the Fixed Income Division.
