Outstanding impact bond issuance surged past the $1 trillion mark in May. We have seen a material shift across our client base, especially in Europe, toward strategies that embed investor values in how they are designed. Where investors are allocating for both financial and values-based returns, it is important to avoid what is known as greenwashing or impact washing, and this brings in a further data challenge.
We have found many issuers labeling their bonds as having a green or social impact with little intention of using the proceeds toward any demonstrable "impactful" purpose. Out of 200 impact bonds we have rated since 2017, only 33% have met all of our requirements to be classified as a genuine impact bond.
This again demonstrates the need for qualitative, proactive engagement and analysis.
Failure to comply with recognized ESG standards can pose a threat to the financial performance of companies across the entire universe of debt investments. Trusting third-party data is not enough. Having a good understanding of the risks in each area, and addressing them in analysis, is crucial for those looking to achieve their financial and non-financial goals.
Alex Veroude is chief investment officer for North America at Insight Investment, based in New York. This content represents the views of the author. It was submitted and edited under P&I guidelines but is not a product of P&I's editorial team.