LONDON : Companies are selling a record number of bonds with penalties attached if they fail to meet environmental and social targets, but there's a catch - some goals are so soft that firms can actually take their foot off the gas.
Unlike the bigger green bond market, which funds specific projects, SLBs focus on company-wide targets and do not restrict how the money is spent. Those principles require targets to be ambitious, represent material improvement in underlying indicators and go beyond business as usual. ICMA reiterated its principles and pointed to a separate climate transition financing framework when approached for comment by Reuters.Of 36 SLBs eligible for Insight Investment's sustainability funds, only four met the highest standard for transparency and ambition, its responsible investment head Joshua Kendall said.
One example is Canadian energy pipeline operator Enbridge, which raised US$1.8 billion from two 12-year SLBs. Both include a target to cut 'Scope 1' and 'Scope 2' greenhouse gas emissions intensity by 35per cent by 2030 from 2018 levels.Scope 1 emissions result from a company's direct operations, while Scope 2 refer to emissions from power usage.
ISS, the opinion provider, said in its opinion and reiterated to Reuters that there was insufficient historical data to judge ambition against past performance, although it said Enbridge's goals were ambitious versus sector peers. Tesco was 83per cent of the way there before launching its first SLB. A spokesperson noted the target was aligned with keeping global warming to 1.5 degrees Celsius and said improvements would get harder as Tesco nears its targets.
Some investors say these are not demanding enough and do their own analysis instead. Opinion providers such as ISS say their job is to give an evaluation, not pass or fail bonds. Penalties are also weak, commonly adding 0.125per cent-0.50per cent per annum in interest for the bond's final years.