AXA Investment Managers calls for new “transition bonds” to help companies go green
- 11 June 2019
Green bond market needs a new “transition” bond to allow carbon intensive companies to finance their gradual shift away from fossil fuels, AXA Investment Managers has said.
While green bonds have become established options for fixed income investors, AXA IM believes the asset class is at a crossroads, with the potential for the bonds to be undermined by a desire for further issuance which the sector cannot currently provide.
As such, AXA IM’s ESG research and engagement team is calling for a new type of bond that is required to help companies which are not yet green - and will therefore struggle to justify high quality and eligible for any “green taxonomy” green bonds - to instead issue debt which is tied to them becoming greener businesses.
Considering this, AXA IM has developed guidelines to support would-be issuers of transition bonds, covering considerations such as reporting, management of proceeds, and issuers’ sustainability strategies, to create a rigorous market for them.
The bonds could be used to finance projects such as carbon capture storage, cogeneration plants and gas transport infrastructure, among other areas.
These transition bonds would help investors overcome the major challenge of providing capital not just to companies which are already green, but to those which have ambitions to become so.
Yo Takatsuki, AXA IM Head of ESG Research and Engagement, said: “We believe the establishment of a new asset class called Transition Bonds is vital for those issuers which do not have the capacity or capabilities to launch green bonds. Aimed at companies operating in greenhouse gas intensive industries such as materials, extractives, or chemicals, alongside other companies which lack sufficiently green assets to issue a green bond, transition bonds would provide an alternative source of finance specifically aimed at helping the journey to become greener.”
The bonds would be used by companies solely to finance transition projects, with a high level of transparency around the bonds and their use to give investors’ confidence about how their capital is being deployed.
“Transition bonds would allow the quality of the green bond market to avoid being diluted by issuances where the environmental benefit of projects being financed is less clear. The concept of the Green Bond has been proven; it works, and it is here to stay, but that market is now at a crossroads.”
“We believe green bonds must remain a market which prioritises ambition, quality and integrity. It cannot be undermined by secondary concerns. The creation of transition bonds will help maintain the level of quality of the green bond market while offering a source of financing for the other activities necessary for the technological and energy change that will perpetuate the advent of and a low carbon world and economy.” added Yo Takatsuki.
Hans Stoter, Global Head of Core Investments at AXA IM, added: “At AXA IM, we believe that it is essential for asset managers to take a proactive approach to sustainable financing hence we want to play a leading role in the development of Transition Bonds as these have the potential to significantly impact the market. It is necessary for the intensive users of carbon energy to transition towards lower and more sustainable energy consumption.”
“The work our team have done in calling for this new type of bond and outlining the framework for its operation to make this a reality, is a major step for us as a responsible asset manager.”
Disclaimer
About AXA Investment Managers
AXA Investment Managers (AXA IM) is an active, long-term, global, multi-asset investor. We work with clients today to provide the solutions they need to help build a better tomorrow for their investments, while creating a positive change for the world in which we all live. With approximately €750 billion in assets under management as at end of March 2019, AXA IM employs over 2,350 employees around the world and operates out of 30 offices across 21 countries. AXA IM is part of the AXA Group, a world leader in financial protection and wealth management.
AXA IM is a leading institutional investor in the green, social, and sustainability market. We manage approximately 4.5 billion euros in total of these use of proceeds bonds. This consists of €3.9billion in green bonds across our Fixed Income portfolios for institutional investors including pension funds and insurance companies, as well as €281 million in Social Bonds and €333 million in Sustainability Bonds (as of 31 March 2019).
- Visit our website: www.axa-im.com
- Follow us on Twitter: @AXAIM
- Visit our media centre: www.axa-im.com/en/media-centre
Disclaimer
AXA Investment Managers UK Limited is authorised and regulated by the Financial Conduct Authority. This press release is as dated. This does not constitute a Financial Promotion as defined by the Financial Conduct Authority and is for information purposes only. The content herein may not be suitable for retail clients. No financial decisions should be made on the basis of the information provided. Any mention of a strategy is not intended to be promotional and does not indicate the availability of an investment vehicle.
This communication is intended for professional adviser use only and should not be relied upon by retail clients. Circulation must be restricted accordingly.
Issued by AXA Investment Managers UK Limited which is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales No: 01431068 Registered Office is 7 Newgate Street, London, EC1A 7NX. A member of the Investment Management Association. Telephone calls may be recorded or monitored for quality.
Information relating to investments may have been based on research and analysis undertaken or procured by AXA Investment Managers UK Limited for its own purposes and may have been made available to other members of the AXA Investment Managers Group who in turn may have acted upon it. This material should not be regarded as an offer, solicitation, invitation or recommendation to subscribe for any AXA investment service or product and is provided to you for information purposes only. The views expressed do not constitute investment advice and do not necessarily represent the views of any company within the AXA Investment Managers Group and may be subject to change without notice. No representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein.
Past performance is not a guide to future performance. The value of investments and the income from them can fluctuate and investors may not get back the amount originally invested. Changes in exchange rates will affect the value of investments made overseas. Investments in newer markets and smaller companies offer the possibility of higher returns but may also involve a higher degree of risk.
Risk Warning
The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested.