Does The Rainbow Appear In The Fixed Income Markets

“This sustainability thing is a fad,” some people said at the beginning. “Sustainability has stopped being a fad to become a trend” was the next move. “Sustainability is something strategic” has been the next step, in which we are currently involved. Many times I ask myself if we are really aware of the problem we are creating or if we are doing this to cover the record of the regulators.

It is then when I turn on the mobile phone or the television, I see the fires that consume the different lungs that our planet has, the plastic islands in our oceans, the extreme meteorological phenomena … and I think that it is something completely necessary.

The first question we have to ask ourselves is how can we, as individuals, promote this shift towards a more sustainable planet? All movements of caring for the environment, recycling, reducing emissions are always welcome, but we have to be more ambitious. It is in this step that sustainable investing comes into play.

We always think of entering the capital of companies as the fastest way to act in decision-making. This is true. However, this is when an agent comes into play that we rarely consider, and is very important for companies. The issuance of bonds, fixed income and the financing that companies need for projects and carry out their activity is of vital importance for them.

In recent years, the financial markets have witnessed a boom in bonds with sustainable characteristics. Traditional bonds are now called, in financial jargon, brown bonds. And here the color palette begins to emerge.

There are green bonds , to finance environmental projects; social bonds , financing for social purposes; the sustainable bonds , combining the previous two; sustainable bonds linked to certain metrics that, if not met, the company will have to pay more interest; the blue bonds , which are financed projects related to water; orange bonds, linked to intellectual property sectors; transition bonds; related to financing companies to transition to a greener economy; and crowds are more than sure to come.

“We are talking about a growing market, to which we must adapt and from which we must learn”

What makes investing in bonds with sustainable characteristics unique to help the environment? This type of financing is always destined to finance a project that seeks the good of the environment or of society as a whole; and, in addition, the flow of financing must be verified by an external agent.

This means that all the projects financed with the money raised will be verified by an independent party , and sometimes even two, and they will verify their destination. The next development that is being considered is the audit of these flows, which will give the asset class even more credibility. Ultimately, investors value the impact our investments have on the environment and this is one way to measure that impact.

All these practices that until now were considered as good practice within the financial markets, are beginning to become mandatory due to the regulatory tsunami that is driven especially by the European Union. There are more and more controls and information that managers and companies have to publish related to sustainability. The focus of regulators is to avoid the so-called greenwashing , that is, to allocate money that should go towards sustainable projects towards something that is not.

As a culmination, we are talking about a growing market, in constant change and for which we have to know how to adapt and learn from it. But that is why we must not disdain it and it can become one of the necessary sources to achieve that long-awaited change that we all seek or should seek.