Japanese real estate firm Hulic Co. recently joined a handful of
borrowers worldwide in selling so-called sustainability-linked bonds, but the
market's reception has been underwhelming.
A new type of bond
that penalizes issuers for failing to meet social and environmental goals is
raising concern among some investors that buying the debt may not be all that
ethical.
Japanese real estate firm Hulic Co. recently joined a handful of borrowers
worldwide in selling so-called sustainability-linked bonds, but the market’s
reception has been underwhelming. Such securities offer an extra coupon if the
issuer fails to meet goals, and for some investors that raises a troubling
question: is it really ethical to profit from a company missing its green or
social targets?
The muted reaction
is fueling an early debate about whether the booming market for environmental,
social and governance (ESG) investments risks skewing incentives for
issuers. There have also been broader concerns that the cutting-edge laboratory
of ESG bond design sometimes churns out structures that have design flaws. Many
investors have struggled with other structures, for example, to figure out
what’s really green and what’s “greenwashing” -- the use of misleading labels
to create an undeserved image of environmental responsibility.
Hulic barely sold
out its 10 billion yen ($96 million) of 0.44% notes last month, at a time when
orders for other green bonds in Japan have far exceeded the supply.
Globally only
about 10 issuers including Chanel Ceres Plc and Novartis AG have sold
sustainability-linked securities after the world’s first such issuance last
year from Italian utility Enel SpA.
“If the issuer
achieves its goal, a low coupon can be treated as a reward for them, which
makes sense,” said Nao Kobayashi, deputy manager of the investment department
at Mitsui Sumitomo Insurance Co. “But if it fails, a step-up coupon is
considered as a penalty, and it doesn’t sound right for us to benefit from
someone’s penalty.”
No comments:
Post a Comment