Sustainable Bonds, What They Are and Incorporating Them in Portfolios
Eric Jussaume SVP, Senior Portfolio Manager & Director of Equities
Aimee Forsythe, CFA SVP, Senior Portfolio Manager
Lindsey Donovan AVP, Analyst
What are Green Bonds?
Green bonds, whose proceeds are used to fund environmental projects, are playing an increasing role in helping issuers to meet environmental goals and initiatives. The first green bond was issued in 2007 by the European Investment Bank to finance climate-related projects. The green bond market now exceeds $1 trillion with bonds issued by corporations, municipalities, and sovereign nations. Examples include bond proceeds to increase renewables, improve water efficiency or recycling, remodel facilities to LEED standards and upgrade transportation systems. Corporations are the largest issuers of green bonds in the US, particularly companies in the utility and real estate sectors.
Social and Sustainability Bonds
Social bonds are issued to fund projects focused on positive social change, including initiatives around infrastructure improvements, access to essential services, affordable housing and socioeconomic advancement. The social bond market is younger, dating back to 2013 when the International Finance Corporation began the "Banking on Women" bond program. Since then, the market has continued to grow and is now over $15 billion. Foundations have also begun to issue social bonds for grantmaking. Recently, the Ford Foundation issued a social bond to fund organizations engaged in social justice.
Sustainability bonds, which may combine environmental and social projects into one issue, have also grown in issuance.
Due to high demand for all of these new bond types from SRI investment strategies, issuers are often able to achieve a very competitive and attractively low costs of capital when issuing in these formats. We consider all of these bond types for our SRI bond strategies and scrutinize the financials for credit worthiness and relative value. We will not purchase green, social, or sustainability bonds that do meet our fundamental credit standards in addition to the positive causes they support. We have made initial investments in some of these markets and expect to be adding more in the future.
Time to re-evaluate your financial future? Our wealth management professionals can help.
You are leaving Cambridge Trust's Web site and linking to a third party site. Please be advised that you will then link to a Web site hosted by another party, where you will no longer be subject to, or under the protection of, the privacy and security policies of Cambridge Trust. We recommend that you review and evaluate the privacy and security policies of the site that you are entering. Cambridge Trust assumes no liability for the content, information, security, policies or transactions provided by these other sites.