Impact Investing Conference

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Bloomberg launches green, social, sustainability index Bond BuyerBloomberg launches green, social, sustainability index Bond BuyerBloomberg launches green, social, sustainability index Bond Buyer

Impact Investing Forum 2024

London. April 24-25, 2023.

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Bloomberg LP has launched a U.S. Municipal Impact Index to track municipal bonds that are classified under green, sustainability, and social.
A bond must be self-labeled green, social, or sustainable directly from an initial offering. It must also be reviewed by independent assurance providers. The bond must also use 100% proceeds to fund a project that is in accordance with the International Capital Market Association’s (ICMA) principles. “Investor demand has been growing for municipal impact bonds, and its market value have more than doubled over the last three years,” said Nick Gendron at Bloomberg. In February 2020, Bloomberg introduced a green leaf icon next certain bonds on its terminal to designate them as green. This includes clean water, renewable energy (wind, solar, geothermal), green building construction and other related projects, although some of these bonds have not self-designated or had a third-party verification.Bloomberg doesn’t evaluate for “‘sustainability,’ so we will only utilize either the issuer or 3rd party verification,” Gendron told The Bond Buyer. “For ‘green’, we use Bloomberg’s scores to review the bonds. We have not yet had to disagree with an issuer, but we would still display as “Issuer Labeled” according to our index methodology. Gendron stated that they currently add the third party verifier to the text notes of DES or bond description function on the terminal as an involved party. This is similar to how they show the trustee, bond council, and underwriter. Bloomberg Index Services Limited and Bloomberg ESG Scores are both fully transparent and can be found on the Bloomberg terminal or our website. ESG investment considerations are growing around the world, but the U.S. municipal securities markets are just beginning to explore the space in varying degrees. Refinitiv MMD data shows that $36.60 billion worth of ESG bonds were issued this year. This is more than the $16.621 trillion issued in 2020. Comparable to annual municipal issuing — $484 billion total in 2020, and currently at $466.610 trillion through Thursday — the figures seem small but growing with ESG representing 3.4% annual municipal issuing in 2020 but 11.68% year to-date 2021, according to Refinitiv data. However, CBI chief executive officer Sean Kidney expects at least 50% growth for 2022 over this years numbers. Kidney stated that green muni bonds have seen strong growth, with the California’s $464million Certified Climate Bond from State Public Works Board. “The wider ESG bond issuance market is also growing.” In November, 40% of all European bonds were green or ESG. The U.S. is moving in this direction. The United States is moving in this direction. Sustainalytics also offers green designations. Built America Mutual has a green designation to insure bonds. In late 2019, Nasdaq introduced a Sustainable Bond Network, an online platform that aims to increase transparency in the global market for green, sustainable, and social bonds. There is a demand for all this data. In October’s Bond Buyer report, more than half (56%) of respondents rated ESG as important for the municipal industry. The highest importance was given to the environment at 73%, followed closely by governance at 60%, and social at 50%. A majority of respondents (77%), believe that ESG should be universally understood in the municipal market. Gendron stated that they have not seen price adjustments due to green, social, or sustainability labels. However, Gendron acknowledged that there is potential for this space to grow and will continue to monitor it. “From an overall performance perspective, although the compositions for this impact index and the overall market are quite distinct, this market has had annual returns in the range of 8.03% to 5.42% and 1.57% in 2019, 2020 and 2021 YTD through November vs. returns at 7.53%, 5.21, and 1.35% respectively for the overall nontaxable muni index over the same timesframes,” Gendron said. Peter Franks, senior analyst at Refinitiv, stated that “to date, there has not been any significant difference in value between an ESG bond and a comparative non-ESG bonds. While it is possible that this will change in the future, our research so far has not shown any difference. Gendron stated that the company believes the index will be popular for traditional benchmarking and exchange-traded product creation. “While also serving as a useful tool for deep research into this growing segment of municipal bond markets, it will be a useful tool.” The index was launched with a history that dates back to January 1, 2019. The index’s history must be calculated back to January 1, 2019. Only fully tax-exempt bonds are allowed to be included in the index.

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