BlackRock headlines green bonds push, but is investor action ambitious enough?

As a new briefing paper highlights that up to $6.9trn in controlled assets are covered by investors with little to no environmental, social and governance (ESG) responsibility, the world's largest investor has headlined a stream of new green bond announcements.

Just one week after warning that high-level directors could be voted out of companies that are failing to mitigate climate-related risks, the world’s largest investor BlackRock, has unveiled its Green Bond Index fund, following a heightened investor demand for ESG fixed income securities and products.

“We see a strong interest in Green Bonds from clients we service as they seek to participate in climate friendly and environmentally beneficial investments without making major changes to sector allocation or liquidity risk in their holdings,” BlackRock’s head of climate solutions Ashley Schulten said.

BlackRock has revealed that the Bonds will mirror investment performances equal to that of the Bloomberg Barclays MSCI Global Green Bond Index – considered an independently evaluated measure of the global green bond market.

The Green Bond launch from BlackRock was followed by similar announcements from the Shenzen Stock Exchange (SZSE) and the Luxembourg Stock Exchange (LuxSE), although their Index Series will track China’s green bond market and how it compares to Europe’s.

The two exchanges will examine the two largest green bond markets in an effort to “bridge the gap” between the two and improve the international influence on China’s market.

Governance gulf

Despite progress in recent days, London-based environmental consultants E3G have published findings in relation to the internal ESG capacity of leading investors. A new report has found that 33% of Principles for Responsible Investment (PRI) – voluntary principles to promote ESG decisions and actions – signatories employ no ESG staff to oversee climate and environmental consequences, and a further 20% employ just one member.

According to the report, more than 500 signatories employ one or fewer staff members in relation to ESG. These 500 plus members represent around $6.9trn in assets. E3G estimates that the average PRI signatory has one ESG specialist per $14bn of assets managed.

E3G has raised concerns that a lack of specialist focus on ESG could undo the stability of the global economic system, with investors already fearing that the next financial crash will be climate related.

“If these companies do not have the capacity to assess climate change risk they are not only putting their own companies at risk, they are locking in investment in a high carbon future that has the potential to cause a global economic crash,” E3G’s director Ingrid Holmes said.

“These investors are at the heart of the solution to avoiding dangerous climate change. Climate change is a global emergency and the investment community must now act accordingly.”

The report calls on the “majority” of PRI signatories and investors to “rapidly expand and strengthen” internal ESG expertise and exercise options for staff training on the subject. E3G has also called on policymakers to distinguish the difference between investment managers and asset owners, the latter of which is less likely to hire dedicated ESG staff, when developing investment policies.

Last year, WWF claimed that the green bond market was in urgent need of ‘vigorous’ industry standards in order to overcome the “complexity and confusion” that is currently hampering investor confidence in financing green projects.

However, signs of progress have been on show this month. Alongside this week’s announcements, the World Bank issued its first ever set of green bonds that directly link financial returns to companies performing to the standards of the United Nation’s Sustainable Development Goals (SDGs).

Matt Mace

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