Bond Market The Latest Greenwashing Arena; Phony/Feeble Goals, No Transparency

[hatrack]

EDIT

Bloomberg News analyzed more than 100 SLBs worth almost €70 billion that were sold by global companies to investors in Europe—the most mature market for sustainable finance products—and found that the majority are tied to climate targets that are weak, irrelevant, or even already achieved. The result, researchers say, is that companies are getting something for nothing: Cheaper financing and an enhanced green reputation come without any real effort to deliver on climate goals and no chance of financial penalty.

A closer look at the Chanel deal showed that, in fact, the company had fulfilled a key objective before it even sold the bond to investors. The bond required Chanel to reduce its so-called indirect or Scope 3 emissions—basically the emissions produced by its suppliers and customers—10% by 2030. But the company’s own disclosures show that, by the time the bond was issued, those emissions had already fallen 21% below the baseline set in the bond contract. So Chanel was getting to pay its lenders a lower rate for meeting a goal that it had already succeeded in achieving.

So why did investors agree to it? A Chanel spokesperson says the company was still “finalizing 2019 data” when investors bought the bond; in other words, they didn’t know that the target was already achieved. Investors should demand better, says Ulf Erlandsson, a former bond portfolio manager who’s now chief executive officer of the Anthropocene Fixed Income Institute. “I would say, ‘Hey, you guys, you’re taking me for a fool. You’re trying to be a little too cute for your own good,’” he says.

EDIT

In January, Julian Kölbel of the University of St. Gallen and Adrien-Paul Lambillon of the University of Zurich compared SLBs with regular corporate bonds issued by the same companies within the past five years. They found that SLBs typically pay about a 0.30 percentage point lower interest rate than a comparable plain bond. The interest rate typically rises only 0.25 percentage point if a borrower misses its sustainability targets, and it triggers much later in the bond’s life, which means the cumulative interest payments are much smaller. That’s why the researchers called SLBs a “free lunch” for the companies that issue them. For now, there are no penalties that are greater than a 1 percentage-point increase in the bond’s interest rate. Both the carrot (a low interest rate) and the stick (a bigger step-up in interest rate) need to be made bigger, says Anthropocene Fixed Income Institute’s Erlandsson.

EDIT

https://www.bloomberg.com/news/features/2022-10-04/greenwashing-enters-a-22-trillion-debt-market-derailing-climate-goals?srnd=green&leadSource=uverify%20wall

[progree]

1. An SLB is a sustainablity-linked bond. Something I never heard of before.

https://www.google.com/search?q=What+is+an+SLB+bond&oq=What+is+an+SLB+bond&aqs=edge..69i57j0i390l4j69i64.7391j0j1&sourceid=chrome&ie=UTF-8