Investing for a positive impact | Insight Investment

Key insights

Over the first nine months of 2023, $698bn¹ of impact bonds were issued

• Sovereign and supranational impact bond issuance has continued to rise, with the UK and European Commission issuing their first green bonds in 2021.
  
  

Investor demand and global needs continue to bolster impact issuance.

• While the COVID-19 pandemic caused social bond issuance to soar further than ever before the focus of the market has remained with green bonds due to high expenditure required to mitigate climate change.
  
  

Against this backdrop of expanding issuance, and a lack of regulation, ‘impact washing’ has become an unfortunate reality.

• Out of a total of 1,235 impact bonds we have rated from end 2017 to end of September 2023, it has been concerning to see that 21% have not met our requirements to be classified as a genuine impact bond.²
  
  

Investors should consider a wider array of way of making a positive environmental and social impact, and sustainable outcomes in fixed income.

• In our view, this can be achieved in three ways: use-of-proceeds/impact bonds; investing in companies that generate revenue from sustainable activities; and investing in companies with capital expenditure in sustainable activities.
  
  

We welcome the introduction of high-quality green bond standards by the EU that develop the guidance set by the International Capital Market Association (ICMA) Green Bond Principles, but challenges around adoption and divergence may persist.

• The threshold requiring 85% of proceeds to be aligned with the EU taxonomy is a high bar for issuers and risks the standards remaining European in focus, leading to increasing divergence in standards across geographies.
• In addition, if too onerous, a risk remains that the standards may suffer from a lack of widespread adoption even within Europe.
  
  

Until more formal frameworks are enforced, it is vital for investors to carry out appropriate due diligence to avoid falling victim to impact washing.

•  Likewise, the voluntary nature of the EU Green Bond Standard framework means we think it is vital for investors to carry out appropriate due diligence to avoid falling victim to impact washing.
  
  

Impact bond issuance growth split by types until 30 September 2023

Source: Insight Investment, Data through September 2023.

Read full paper

In our paper on investing for impact, we consider:

• The growth and characteristics of the $3 trillion impact bond market.
• Other ways in which investors might pursue a positive impact through fixed income investments.
• The risk of ‘impact washing’ and how to tackle it.