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    Impact bond quarterly update: Q4 2022

    Impact bond quarterly update: Q4 2022

    January 06, 2023 Responsible investment, Fixed income

    Issuance slowdown continues, but green shoots of growth for 2023

    • The European Union and Chinese state-owned banks were among the largest issuers in Q4. Asian corporates and governments continued to drive a growing share of new issuance, and we expect this trend to accelerate in 2023, with growing opportunities for emerging market issuers
    • Green use-of-proceeds frameworks are increasingly favored by the market and regulators over sustainability-linked structures, which lost momentum in 2022
    • A significant share of impact bond frameworks achieved Insight’s best-in-class ‘dark green’ rating in Q4, indicating a possible upwards trend in the integrity of such frameworks

    Table 1: Largest impact bond issuers in Q4 20221

    Issuer Issuer type Size of issue Bond type
    European Union Supranational €6.5bn, €5.7bn Social, Green
    Caisse d’Amortissement de la Dette Sociale Government €4.7bn Social
    Bank of China Financials $4.2bn Green
    Ping An Bank Co Ltd. Financials $2.8bn Green
    Agricultural Bank of China Financials $2.1bn Green

    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 Q4 2022

    Our analysis of 57 impact bonds issued in Q4 2022 resulted in the following ratings:

    13381_RI-FI_Q422_Triangle_Dark-green.png bonds were rated dark green, indicating the bond is best-in-class with regard to its sustainability profile
    13381_RI-FI_Q422_Triangle_Bright-green.png bonds were rated light green, indicating the bond fulfils Insight’s sustainability requirements
    13381_RI-FI_Q422_Triangle_Red.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
    Real Estate Green Yes Yes Yes

    Analyst assessment:

    This bond targets alignment of new and existing building stock with the BREEAM ‘Excellent’ certification status; alignment with the EU Taxonomy of Sustainable Activities; and renovation of existing buildings to achieve significant improvement in primary energy demand, energy efficiency and top-third percentile national and regional energy performance across all buildings. Emissions reduction of 50% across the entire value chain is targeted by 2030 and validated by the Science Based Targets initiative (SBTi). Use-of-proceeds categories are detailed, as are associated thresholds and linkages to building certification standards. Similarly, the issuer has committed to allocation and impact reporting which will be externally verified, and key performance indicators have been detailed for this reporting. A dedicated green finance committee has been developed for project selection and evaluation purposes.

    This framework is an update to an earlier issuance framework which was rated ‘Red’ by Insight, reflecting significant improvements. The renovation-targeted use of proceeds (to achieve BREEAM ‘Excellent’ status and at least a 30% reduction in primary energy demand over a three-year look back) show particular innovation given the age range of buildings managed by the issuer and the unique challenges of decarbonizing the built environment in the countries it operates in. Further ambition in target setting (for example, BREEAM ‘Outstanding’ status for newer buildings and further supply-chain decarbonization targets) would be potential areas for future improvement.


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

    Analyst assessment:

    This bond targets rollout of new 5G and fibre optic infrastructure, as well as renewable energy deployment in operations. The issuer has a headline target of 90% reduction in operational greenhouse gas emissions by 2025 in primary markets, a target which has been externally validated by the SBTi. A similar (85%) reduction in energy consumption per customer and reduction in demand for cooling and maintenance of equipment. Projects to be financed are diverse, encompassing renewable energy additions and social programs targeting underserved rural areas.

    Insight rated this framework ‘Light Green’ on the basis of impactful use of proceeds but weaknesses in overall governance. For example, the timeline for allocation of proceeds is not given but pending full allocation, funds will be temporarily invested according to the issuer’s normal liquidity policy. Similarly, the share of new financing versus refinancing of projects is not provided, but a maximum lookback period of two years will be applied to any refinancing. Greater transparency on allocation of proceeds and refinancing would be in line with best practice.


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

    Analyst assessment:

    This issuance focuses on renewable energy deployment, as well as biomass, biogas or biofuels, heat pumps and waste-to-energy projects. These are to be delivered via subsidies to small-to-medium enterprises and households, state-owned enterprises and public sector buildings. Other priorities include subsidies to the agricultural sector to improve land-use management, biodiversity and water impacts from the sector, low-carbon transportation and climate adaptation spending.

    Taken together the use of proceeds are reasonably well defined and have the potential for significant impact, although there is a lack of detail with regard to project eligibility for many categories (for example, in bioenergy, feedstock sources and lifecycle emissions are not defined) which is a source of concern – particularly with regard to EU Taxonomy alignment of projects and consistent application of the ‘Do No Significant Harm’ principle for wider environmental objectives.

    More broadly, the issuer has weak historical climate change performance and details on how ESG risks are to be managed are lacking. Critical details with regard to framework governance are also missing – an ‘intergovernmental working group’ is responsible for project evaluation and selection but little detail is provided either on how these processes will operate or on ongoing monitoring.

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