ESG investments in danger of failing to bond

Munich Re recently announced its investment in its first green bond, yet there are those who say that these bonds may well be short lived.

As some of the world’s biggest investors the re/insurance industry is looking at its environmental, social and governance (ESG) credentials and with it how it can improve its performance.

The steps by some underwriters to distance themselves from fossil fuel investments and clients are being met with mixed approval from environmentalists. However, a green investment strategy would in the face of it seem to be a path of very little resistance.

Green Bonds are on the rise and that rise is becoming exponential.

Total green bond issuance topped $1 trillion in the past week, joining ESG-focused funds that have a similar amount in assets under management. In the past month alone, more than $50 billion of green bonds were sold, including debuts in Germany by a trio of automakers including Volkswagen, and JPMorgan, the biggest U.S. bank by assets, according to data compiled by Bloomberg.

Analysts at Bank of America expect another $450 billion of green, social and sustainable debt to be issued in 2021, roughly equalling this year’s issuance.

However, as businesses across the world plunge into these ESG-friendly investments there are still storm clouds on the horizon. Green they may be called but the Bank for International Settlements said it can find no evidence green bonds result in lower corporate carbon emissions.

Questions are also being asked by company investors as to how the money raised from such bonds is actually used. They want to know whether the bond and its proceeds are as green as their name. It has not been helped by some of the industries which have seen firms issue such bonds. There have high profile bonds from oil companies in the recent past

Fears of what has been termed “greenwashing” are such that European regulators have begun the process to create a set of standards that will define what green really means.

The timing is apposite given that it is expected there will be a $265 billion green securities launch by the EU in the coming months.

There are also some who believe that the Green Bond market will disappear in the years to come.

Writing in Bloomberg Opinion this week, Jared Dillian, an investment strategist at Mauldin Economics said: “ESG is nothing but a passing investment fad, not unlike smart beta, the BRICs, structured products or any of the myriad market bubbles over the last 25 years, small and large.”