Clean firms beat polluters in green bond market

THE green debt of companies with lower carbon emissions trades at a significant premium to that of heavy polluters, M&G Investments research has said.

While green bonds from carbon-intensive firms in sectors such as utilities and autos have an estimated “greenium” of just 1.7 basis points, low-carbon firms in industries such as banking and technology achieve 7.5 basis points, the asset manager said. The analysis also found US green bonds get a larger greenium than European ones.

With environmental, social and governance (ESG) investing facing a political backlash in the US and greater global scrutiny over potential greenwashing, the results suggest the market clearly favours green bonds from greener issuers. That came as a surprise to Mario Eisenegger, the M&G fund manager who conducted the research. 

“If fund managers care about the real world impact, we should focus on credible green bonds of heavy emitters to help accelerate the decarbonisation of their business models, rather than supporting green bonds of businesses that are already far advanced,” he said in an interview. “The good news is that this allows bond investors to add relatively cheaply green bonds of sectors that urgently need to decarbonise.”

The concern – that the market is failing to reward impact – chimes with other research, such as a Federal Reserve paper last year which found the premium is not linked to the credibility of the environmental projects they fund. Some asset managers focus on the overall climate record of the issuer and reject the green debt of dirtier companies.  BLOOMBERG