UK falls behind Europe in using bond markets to raise capital to tackle issues facing people and planet, says TGE report

Henry Palmer Mon, June 08th, 2020

The UK lags behind other European countries in using social, sustainability and green bonds to inject capital into sustainable development priorities, according to an impact report unveiled this week.

The report, Threadneedle UK Social Bond Fund Annual Impact Report, urged the UK Government to do more to enhance the role of capital markets in tackling social and environmental issues. The report is produced annually by The Good Economy to track the impact performance of the Threadneedle UK Social Bond Fund, managed by Columbia Threadneedle Investments (CTI) in partnership with specialist impact investor Big Issue Invest (BII).

Unrealised potential
According to the report, listed bonds are used widely across Europe to increase the flow of capital from private and institutional investors into areas including “infrastructure, affordable housing and renewable energy projects”. These bonds are typically issued in accordance with the International Capital Market Association’s (ICMA) Green, Social and Sustainability Bond Principles.

In 2018, green bond issuance was valued at around $800 billion, sustainability bonds reached a level of $13.9 billion and social bonds $11.3 billion. European, as well as Asian, institutions have been the largest issuers.

Lagging behind
Assets under management in the Threadneedle Social Bond Fund were £120m at the end of the reporting period and grew by a further £64m to a total of £184m by the end of 2019. The Fund provided investment in 145 bonds targeted at eight outcomes aligned to the UN’s Sustainable Development Goals and with an overall objective to support more sustainable and inclusive development in the UK.

But the chair of the Fund’s advisory committee, John Hale, said more should be done to encourage new social, green and sustainable bonds in the UK.

“On the supply side it should be noted the UK is lagging behind its European counterparts in the issuance of green, social and sustainable bonds,” he said. “While the need for bonds targeting such outcomes in the UK is high, opportunities to invest are relatively low. This can, in part, be explained by the recent political hiatus and accompanying economic environment disincentivising bond issuance by UK organisations.”

Simon Bond, director of responsible investment at CTI, said: “The report highlights the need for continued widening of scope from green to social and sustainability bonds in the UK and COVID-19 has helped to bring that into sharp focus. Bonds whose proceeds specifically address the social issues relating to COVID-19 have a significant role to play in addressing the threat.”

Sarah Forster, CEO of The Good Economy, said: “We encourage the UK Government to take a leadership role and make the necessary institutional changes, including greater fiscal decentralisation, to enable more bond issuance in the UK, especially outside London, including local government and sovereign social bond issuance.”

Danyal Sattar, CEO of Big Issue Invest, said: “Columbia Threadneedle has patiently built this fund over the years and our partnership with them is a good example of how mainstream and impact investors can work together for the good of the economy and society.”

Impact washing concerns
The report also highlighted concerns that the potential benefits of impact investing could be undermined by “impact washing”. This is where existing investment products are repackaged and labelled as “impact investing” but are fundamentally nothing new.

To encourage a “culture of impact integrity”, the authors said: “CTI, BII and TGE are all strong advocates of the need for robust impact management and measurement practices. This means integrating impact considerations into investment decision-making process and assessing and reporting on impact creation, risks and additionality, based on data analysis and evidence.”

Client Report
Client Report Threadneedle UK Social Bond Fund Annual Impact Report (2019) Annually published impact report to track the impact performance of the Threadneedle UK Social Bond Fund
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