A record $500 billion in impact bonds were issued last year, according to data from Bloomberg, an increase of 60% on the 2019.
This increase could easily be repeated in 2021, according to a review by Insight Investment. which would take the overall market close to $2 trillion by the end of the year.
Government-related issuance, at $260 billion, accounted for more than half of 2020’s total issuance, driven by pandemic-related bonds.
Meanwhile financials, with $121 billion added, led issuance from the corporate sector and became the first of this set to exceed the $100 billion-mark for annual issuance. Other sectors fell back: by 50% in consumer staples and 35% in energy.
Joshua Kendall, Head of Responsible Investment Research and Stewardship, said: “Impact bonds can help the investors align with their non-financial objectives, but rigorous due diligence is vital to avoid the risk of ‘greenwashing’.”
In 2020, around 10% of impact bonds evaluated by Insight received a “red” score and 40% a “green” score.
More broadly, fixed income investors might consider the extent to which they are acting to influence the structure of new issuance, Kendall said.
“Corporates can be receptive to direct engagement and feedback. Also, for asset owners such as pension funds, the nature of fixed income investing requires the long-term management of sustainability issues.”