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    Impact bond quarterly update: Q3 2022

    Responsible investment quarterly update

    26 October 2022 Responsible investment, Fixed income

    Impact bond slowdown continues, but there are pockets of growth

    • Issuance of impact bonds lost momentum in Q3, reflecting wider market pressures, but bright spots included substantial new sovereign and agency issuance, including Belgium, Denmark and Germany
    • Generally high-quality disclosures and frameworks from these issuers should drive up disclosure standards over time across all issuer types
    • Looking ahead, ambitious new low-carbon policies in the US and Australia should be supportive of strong issuance growth, particularly for utilities
    • Sustainability bonds have continued to diversify in the range and scale of projects funded, with many issuers in ‘high impact’ sectors embracing the greater flexibility these instruments offer in aligning use of proceeds across diverse social and environmental objectives
    • Balancing customisation and standardisation will become increasingly important as sustainability bonds become more commonplace

    Table 1: Largest impact bond issuers in Q3 20221

    Issuer Issuer type Size of issue Bond type
    Federal Republic of Germany Government €5bn Green
    Caisse d’Amortissement de la Dette Sociale Government €4.8bn Social
    Kingdom of Belgium Government €4.4bn Green
    KfW Government €4.1bn Green
    International Bank for Reconstruction & Development Government $4bn Sustainability

    A note on responsible investment and impact bonds: Investing responsibly means taking all risks, including ESG risks, into account when designing a solution. Investing in impact bonds is one way to encourage a positive environmental or social impact with your investments, but we believe it is more effectively done when considered alongside other relevant ESG factors within the framework of a responsible investment policy and approach.

    Figure 1: Total issuance (USD) by sector1


    Figure 2: Total issuance (USD) by year1


    Insight impact bonds ratings in Q3 2022

    Our analysis of 34 impact bonds issued in Q3 2022 resulted in the following ratings:

    13381_RI-FI_Q322_Triangle_InsightDarkGreen.png bonds were rated dark green, indicating the bond is best-in-class with regard to its sustainability profile
    13381_RI-FI_Q322_Triangle_InsightBrightGreen.png bonds were rated light green, indicating the bond fulfils Insight’s sustainability requirements
    13381_RI-FI_Q322_Triangle_InsightRed.png bonds were rated red, indicating the bond does not meet Insight’s minimum sustainability requirements


    Industry Bond type ESG performance met? Bond framework criteria met? Impact criteria met? Traffic light score
    Healthcare Sustainable Yes Yes Yes

    Analyst assessment:

    The bond’s proceeds target a range of environmental and social objectives, with clear use of proceeds and project eligibility criteria. The issuer also commits to annual reporting on the allocation of proceeds and outcomes with third party verification. Environmental targets pertain to renewable energy deployment, energy efficiency and natural resource management, in support of the company’s firmwide targets. Detailed thresholds are provided for all eligible green project categories. Social targets pertain to widening access to healthcare (in both the domestic US market and low/middle income countries) and fostering economic empowerment. Social KPIs are detailed with regard to their materiality and relevance to the healthcare sector, explaining how these will be monitored going forward. KPIs in the social category are seen to be particularly ambitious, going beyond business as usual for the sector, and a major source of potential impact. Areas of potential improvement include look back reporting and a detailed exclusions list. The issuer has committed to reporting on the former within a year.


    Industry Bond type ESG performance met? Bond framework criteria met? Impact criteria met? Traffic light score
    Technology Green Yes Yes Yes

    Analyst assessment:

    This issuance focuses on financing energy efficiency measures and green buildings, renewable energy deployment in operations and product circular economy investments. The use of proceeds of the bond are tied to the company’s sustainability strategy, particularly reducing direct emissions intensity and improving resource efficiency. Whilst detailed project eligibility criteria are provided for green buildings (in line with recognised international standards) this is not the case for other eligible projects, and level of detail provided for each category varies substantially. Exclusion criteria were similarly seen to lack detail for important issues such as fossil fuel financing, although the second party opinion notes that these activities would be excluded. Exclusions do address labour rights, which have been a historical source of controversy for this issuer. The bond framework demonstrates good governance and reporting practices, including commitments on reporting allocation and impact outcomes, and metrics are detailed. However, no look back period for financing is included, which is an area of concern as many projects listed appear to have links to existing assets.


    Industry Bond type ESG performance met? Bond framework criteria met? Impact criteria met? Traffic light score
    Consumer staples Green Yes No No

    Analyst assessment:

    This issuance is intended to finance renewable energy, circular economy, natural resource management and energy efficiency improvements across products, raw material sourcing, production processes and technologies. However, the bond proceeds are being used for refinancing purposes and existing projects (over 70%), limiting the overall impact of the bond. Other concerns include a lack of targeted eligibility thresholds for energy efficiency or water efficiency improvements driven by funded projects, as well as the lack of exclusion criteria for fossil fuels. The latter is seen as a particularly important omission given the bond is targeting renewable energy capacity additions and reductions in carbon emissions intensity. Moreover, whilst the issuer commits to disclosing allocation of proceeds annually, no split has been provided between the four eligible project categories, each of which could entail a wide range of sub-project types. Notably, the issuer lacks a dedicated green bond committee for project evaluation and selection, with projects selected as part of the company’s normal investment project assessment and capex approval process.

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