Bond investors challenge Wall Street greenwashing

Mr Rich is part of a budding backlash among investors who are wary of “greenwashing” in bonds labeled as eco-friendly. An example: Mr. James cut green bonds from a permanent investment portfolio of approximately $200 million issued by JPMorgan. At Aegon Asset Management on doubts about the bank’s overall environmental record. According to financial filings by Transamerica, a mutual fund for Transamerica Asset Management Inc. closed bonds in the first quarter.

“Setting the 2030 carbon reduction target and striving for $2.5 trillion to support sustainability are clear examples of our continued commitment,” a spokesperson for the bank said.

According to the Climate Bonds Initiative, green bond sales have grown from about $50 billion in 2015 to about $250 billion annually. The market is helping to address a global shortfall in funding for environmental projects, with most industries falling short of the targets needed to sufficiently slow climate change.

Bonds are also popular because they boost the appeal of the corporations that issue them with environmentally conscious customers. Investment banks prefer them for the fees they produce—$2.2 billion in 2021, according to Bloomberg. Money managers scramble to buy them for Environmental, Social and Governance, or ESG, giving money to their clients on demand rapidly. And on average, borrowers can sell green bonds for a lower interest rate than a traditional loan.

Still, financial regulators in the US and Europe are scrutinizing the investment industry for misleading claims, or signs of “greenwashing”.

Steven Nichols, Head of ESG Capital Markets in the Americas at Bank of America Corp., said, “Increasingly we’re seeing that investors are really focusing on how to use the proceeds from bonds with issuers’ overall sustainability strategies. How does that align.”

The voluntary principles of green bonds, drawn up by banks and investors, designate them as financing for projects with environmental benefits. JPMorgan released its deal in September 2020 to finance its transition to renewable energy and sustainable buildings, as well as offer loans to customers making similar changes.

While those uses are in line with ESG investment principles, Mr Rich questioned whether the bank’s overall record did as well. He said his reservations grew because of JPMorgan’s stability and investor-relations executives’ failure to adequately answer their questions. He also saw some signs that the bank was reducing lending to the fossil fuel industry, he said.

“JP Morgan is the largest financier of the energy industry in the world,” said Mr. Rich. “It doesn’t scream stability.”

The bank pledged to facilitate $2.5 trillion worth of financing to address environmental issues over the next decade. According to Dealogic, it is the top underwriter of green bonds for other companies. It had nearly $40 billion of debt exposure to oil and gas companies last year and is keeping coal miner Peabody Energy Corp afloat with a loan that lasts through 2024.

Some investors avoid green bonds that allow borrowers to fund investments that are part of their normal course of business. They are also skeptical about the bonds being used to refinance loans made to environmentally friendly projects already built, a practice that is permitted under green bond principles.

Boston-based money manager Income Research + Management passed on a $450 million stability bond from the Southern California Edison Company after up to half of the proceeds were earmarked for refinancing, said Christoph Nelson, the firm’s co-head of credit research. Still, other investors closed the bonds issued in June at a higher price than the power company’s traditional bonds, he said.

Mr Nelson said utilities often issue green bonds to fund renewable energy and grid modernization projects that are standard investments in the electricity industry. “You can apply a lot of skepticism to all these deals.”

“We don’t want to take credit only for work already done,” said a spokesperson for Edison International, the parent company of Southern California Edison. The company finances most of its capital investments with short-term bank loans before refinancing into the bond markets, and its sustainability financing framework has received the highest possible rating from consultancy Vizio Iris, he said.

Fund managers at Aegon and Research + Management continue to buy green bonds, but say they favor companies like Walmart Inc., which is also a leader in other areas of sustainability.

Bank of America sold the retailer’s first $2 billion worth of green bonds to investors in September. The company was already committed to achieving 100% renewable energy consumption by 2035 and zero carbon emissions by 2040. JPMorgan has set a net-zero target, which includes carbon offsets by 2050.

Organizers of COP26, the international meeting that began on Sunday to coordinate emissions reductions, called on companies like Walmart to take the lead in accelerating their commitments to zero emissions, said Kathleen McLaughlin, the store chain’s chief sustainability officer. said.

“If you look at science, we as a society have to pick up the pace,” she said.

While BNP Asset Management tries to avoid green bonds that fund fossil fuel projects, verification can be difficult because reporting is not yet standardized, said a person close to the firm. He said the money manager recently sold green bonds to a European company, which declined to explain how it used money from green bonds issued a year earlier.

“We would like to see the market strengthen on reporting,” said Christa Clapp, a senior advisor at Cicero, which provides independent opinion on green bonds.

Cicero gave its lowest governance rating in June to a green bond issued by French waste services company Paprec, which does not require the company to publish a stand-alone report on how the proceeds are ultimately used. According to Rai on the deal, Paprec’s “reporting plan is a weakness because of the level of detail and lack of transparency.”

Chief Financial Officer Charles-Antoine Blanc said Paprec disclosed how all green bond proceeds would be used upon issuance. He said the company sold green bonds worth €450 million this year to refinance already existing projects, as well as to finance an already disclosed acquisition, and the environmental impact of the newly purchased assets with Paprec’s 2021 sustainability. Will be detailed in the report, he said.

This story has been published without modification to the text from a wire agency feed