New announcements from two major financial institutions could expand sustainability investment and drive it towards the mainstream
S&P Dow Jones Indices (S&P DJI), the world’s leading provider of index-based concepts, data and research, has announced the launch of the S&P Green Bond Select Index which captures the most liquid and tradeable segment of green-labeled bonds issued globally. The index has been licensed to VanEck for an exchange-traded fund (ETF).
Using market value-weighted characteristics of the S&P Green Bond Index, the S&P Green Bond Select Index measures the performance of green-labeled bonds, which finance sustainability projects. Only green bonds that fulfill a strict set of requirements, such as designation of “green” by the Climate Bonds initiative (CBI), a debt rating aligned with its credit quality and a minimum outstanding par value are eligible for inclusion.
“We continue to see strong demand for investment opportunities that incorporate environmental, social and corporate governance (ESG) factors,” said Reid Steadman, deputy head of Product Management at S&P Dow Jones Indices. “The S&P Green Bond Select Index is a benchmark for market participants seeking to monitor developments in this critical area of green finance.”
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“We are seeing increasing interest from investors for ways to build sustainable, environmentally-conscious portfolios, but until now they have had few investible fixed income index solutions,” said Edward Lopez, head of ETF Product Management and Marketing at VanEck. “We believe the S&P Green Bond Select Index provides an excellent foundation for financial products such as ETFS, which can provide efficient and cost-effective access to the green bond market. We look forward to working with S&P Dow Jones Indices and helping fixed income investors achieve their investment objectives while still making a positive impact on the environment.”
S&P DJI publishes and calculates more than 100 ESG indices. It recently acquired Trucost, a leader in carbon and environmental data and risk analysis, to use a shared commitment to the environment for the development of ESG solutions.
The equity-index bonds directly link returns to the performance of companies advancing global development priorities and have raised a total of €163 million from institutional investors in France and Italy. The World Bank will use the proceeds to support the financing of projects that advance its goals of eliminating extreme poverty and boosting shared prosperity, and are aligned with the SDGs.
The return on investment in the bonds is directly linked to the stock performance of companies included in the Solactive Sustainable Development Goals World Index. The index includes 50 companies that, based on methodology developed by Vigeo Eiris’ Equitics, dedicate at least one fifth of their activities to sustainable products or are recognized leaders in their industries on socially and environmentally sustainable issues. Solactive applies volatility and diversification filters to reach the final index composition. Vigeo Eiris is a global provider of environmental, social and governance research to investors and public and private corporates.
“The global community has made an ambitious commitment to achieve the Sustainable Development Goals and this requires a new way of looking at development finance,” said Arunma Oteh, World Bank Vice President and Treasurer. “This bond is an innovation that demonstrates the powerful role of capital markets in connecting savings with development priorities, while offering investors an attractive risk-reward profile. Looking ahead, we anticipate coming to market with similar issuances that would attract a range of investors across the globe.”
The bonds were arranged by BNP Paribas as part of the SDGs Everyone initiative. Under the initiative, the World Bank will issue bonds that raise funding to support the financing of projects that support the SDGs, and investors benefit from the performance of companies included in the equity index. The initiative is an innovative solution and new financial model that supports the SDGs, as called for by the UN Secretary-General’s Financial Innovation Platform (FIP) launched in October 2016.
“The 2030 Agenda for Sustainable Development is a transformative agenda which aims to make our world more inclusive, peaceful and prosperous. There is a momentous opportunity to change incentive structures in financial markets, shape consumer preferences as well as shareholder interest so that they reflect sustainability. Collaboration between the public and private sector will help to leverage innovative financial solutions that can deliver on the SDGs,” said Amina J. Mohammed, UN Deputy Secretary-General.
Investors in the bond include AGPM VIE, AREAS VIE, BNP Paribas CARDIF France, BNP Paribas CARDIF Italy, Fideuram Asset Management Ireland, Generali France, MGEN, Prevoir VIE, Sella Gestioni SGR and Suravenir.