Aegon AM: Investors should beware the rise of greenwashing in European credit market

by | Mar 13, 2023

Written by Euan McNeil, Fixed Income Investment Manager at Aegon Asset Management

Investors need to beware the rise of greenwashing in the European corporate bond market, according to Euan McNeil, Fixed Income Investment Manager at Aegon Investment Management.

One of the defining developments in the European corporate bond market in recent years has been the rapid growth in issuance of ESG-labelled bonds. While he believes this is a broadly positive trend, McNeil warns that the rapid growth of these bonds has been accompanied by a rise in greenwashing by firms keen to bolster their ESG credentials.

“Companies across all sectors of the global economy have woken up to the financing benefits of issuing ESG-labelled debt.

“This includes both social bonds and traditional green bonds that have explicit benefits for the environment ingrained within their documentation.

“As discerning bond managers, we are vigilant to attempts at ‘greenwashing’ in this area. This is where companies with perhaps questionable corporate governance or ethical standards issue labelled debt in the hope of garnishing their ESG credentials and broader corporate reputation.”

McNeil argues that investors need to look at companies that provide truly compelling ethical propositions. Only firms with an “unquestionable commitment” to the fundamentals of ESG should be worth considering, he says.

“Even as cynical bond investors, it is encouraging to support ESG-labelled debt from a company or an industry with an unquestionable commitment to improving the environment. In these situations, the decision to invest or not simply comes down to price.

“Recently we saw green debt issued by Orsted, a Danish renewable energy company that is committed to achieving a world that runs entirely on green energy. Orsted has extensive operations in the UK through its wind farms and has been a frequent issuer of both euro and sterling corporate bonds over the past 15 years.

“Being able to finance such infrastructure and lend to a company with such a proven commitment to renewable energy was one of our easier recent investment decisions, helped by a slightly weaker market backdrop at the time that was more attractive to lenders.”

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