The job of bond fund manager James Rich is to find sustainable investments for his clients. Recently, he has been rejecting much of what Wall Street has to offer him.

Rich is part of a group of investors who are increasingly wary of greenwashing bonds that are labeled as environmentally friendly. One example: James got rid of a green bond issued by JPMorgan from a $ 200 million green investment portfolio he manages at Aego Asset Management due to concerns about the bank’s environmental record in general. A fund he works for for Transamerica Asset Management got rid of this bond in the first quarter, so we can learn from Transamerica’s financial reports.

“Setting a target for reducing carbon emissions by 2030 and establishing a $ 2.5 trillion sustainability effort are clear examples of our ongoing commitment,” a spokesman for the bank said.

Green bond sales flourished to $ 250 billion a year, compared to about $ 50 billion in 2015, according to the Climate Bonds Initiative. This market is helping to complete a global decline in funding for environmental projects that has resulted in most industries failing to meet the targets needed to effectively slow down climate change.

The bonds are also popular because they encourage the attractiveness of the corporations that issue them among environmentally conscious investors. Investment banks love them because of the rates they generate – $ 2.2 billion in 2021, according to Bloomberg data. CFOs are in a hurry to acquire them for funds dealing with the environment, society and governance, or ESG, whose clients are increasingly demanding. And on average, borrowers can still sell green bonds at a lower interest rate compared to conventional debt.

Still, financial regulators in the U.S. and Europe are examining the investment industry for signs of false claims, or “greenswashing”. in doubt.

“We are seeing investors increasingly focus on the way in which stock earnings are in line with the issuers’ existing strategies,” said Stephen Nichols, ESG Capital Markets Manager at US Bank of America.

Non-binding principles for green bonds, defined by banks and investors, stipulate that they should fund projects that have a social benefit. JPMorgan Bank issued its in September 2020 to fund its transition to renewable energy and sustainable buildings, alongside loans to customers making similar changes.

While these uses are in line with ESG’s investment principles, Rich wondered if the bank’s record in general is in line with them as well. His reservations grew after JPMorgan executives who were committed to sustainability and investor relations failed to answer his questions in a way that satisfied him, he said. He said he also saw few signs that the bank was reducing the amount of loans it was distributing to the fossil fuel industry.

“JPMorgan is the largest funder of the energy industry in the world,” Rich said. “It’s not exactly a transmitter of sustainability.”

The bank has promised to help raise $ 2.5 trillion in financing for environmental issues in the next decade. The bank is the primary registrar of green bonds for other companies, according to Dealogic data. The bank also had an exposure of about $ 40 billion to oil and gas companies last year, and it holds in the air the oil mining company Peabody Energy Corp in a loan that lasts until 2024.

Some investors avoid green bonds that allow borrowers to finance investments that they do anyway as part of their normal course of business. Investors also question bonds used to refinance accumulated debt on environmentally friendly projects that have already been built in the past, a procedure that is permitted under the principles of green bonds.

Boston’s Income Research + Management firm has given up $ 450 million in Edison-based Southern Edison bonds, in part because nearly half of the money went to refinance, said Christoph Nelson, co-director of the credit research network. At the same time, other investors snatched up the bonds issued in June at a higher price than the company’s regular bonds, he said.

Energy companies often issue green bonds to finance renewable energy projects and the modernization of the electricity grid, standard investments in the energy industry, Nelson said. “Many of these issues can be viewed with a great deal of skepticism.”

“We are not just asking for credit for work that has already been done,” said a spokesman for Edison International, Edison’s parent company in Southern California. The company finances most of its capital investments in short-term bank loans before refinancing them in the bond markets and its sustainable financing framework has received the highest possible score from consulting firm Vigeo Eiris, the spokesman said.

Fund managers at Aegon and Income Research + Management continue to buy green bonds, but say they prefer companies like Walmart, which is also a leader in other areas of sustainability.

The Bank of America sold the first $ 2 billion in green bonds to investors in September. The company has already pledged to consume only renewable energy by 2035 and reach zero carbon emissions by 2040. JPMorgan has also set a net zero emissions target, which includes carbon balances by 2050.

The organizers of the COP26 conference, the international climate summit that began work on Sunday on coordinating emissions reductions, have asked companies like Walmart to lead other companies to accelerate their zero-emission commitments, said Kathleen McLaughlin, chief chain of sustainability at the stores.

“If you look at the scientific data, we must move faster at the social level,” she said.

While BNP Asset Management is trying to avoid green bonds that fund fossil fuel projects, verification can be difficult because there is still no reporting standard, a person close to the company said. The money management company recently sold green bonds from a European company that refused to detail how it used the money from a green bond it had issued a year earlier, the same person said.

“We would like to see the market strengthen on the issue of reporting,” said Christa Klopp, senior consultant at Cesaro, which provides independent opinions on green bonds.

Cicero gave its lowest governance rating in June to a green bond issued by French waste processing company Paprec, which does not require the company to publish independent reports on the way revenues are ultimately used. “Paprec’s reporting system is a weak link because it lacks transparency and detail,” the deal said in a statement.

Paprec announces how it will use the proceeds from the issuance of green bonds when they are issued, said Chief Financial Officer Charles Antoine Blanc. The company sold a $ 450 billion green bond this year to refinance existing projects, as well as to fund acquisitions already made, and the social impact of the assets acquired will be detailed in Paprec’s 2021 Sustainability Report, he said.

By Editor

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