Sustainable Finance Products Flashcards
What is greenwashing?
When a company misleads the public by pretending to be environmentally friendly while engaging in harmful practices.
What is a common form of greenwashing?
Publicly claiming environmental commitment while secretly lobbying against regulations.
What are the two types of greenwashing risks?
- Explicit & deliberate greenwashing → Mis-selling risk
- Unintentional greenwashing → Misinterpretation risk
What are the main investment vehicles for ESG-focused investing?
- Mutual funds
- ETFs
- Mandates & dedicated funds
What are common ESG investment strategies?
- Thematic strategies
- ESG-titled strategies
- Climate strategies
- Sustainability-linked securities
What percentage of new net assets in the European ETF market are ESG?
58%
How much ESG fund assets were reported?
$162 billion
How much net flow was directed into sustainable mutual funds & ETFs in Q4 2020?
$370 billion
What is SFDR?
Sustainable Finance Disclosure Regulation – a European framework for classifying sustainable investments.
What are the SFDR fund classifications?
- Article 6: Non-ESG funds
- Article 8: ESG funds (promote Environmental or Social characteristics)
- Article 9: Fully sustainable funds
What is a green bond?
A bond where proceeds are used to finance or refinance environmentally friendly projects.
What are the four core components of the Green Bond Principles (GBP)?
- Use of proceeds
- Process for project evaluation & selection
- Management of proceeds
- Reporting
What types of projects do green bonds finance?
- Renewable energy
- Energy efficiency
- Pollution prevention
- Sustainable natural resource management
- Clean transportation
- Climate change adaptation
What are the two main types of green bond structures?
- Asset-linked bond structures → Regular bonds, revenue bonds, project bonds, green loans
- Asset-backed bond structures → Securitized bonds, ABS/MBS/CLO/CDO, covered bonds
Who are the typical green bond issuers?
- Sovereigns
- Multilateral development banks
- Energy & utility companies
- Banks
- Corporates
Who are the typical green bond investors?
- Pension funds
- Sovereign wealth funds
- Insurance companies
- Asset managers
- Retail investors
Why is there an imbalance in the green bond market?
Demand for green bonds is higher than supply.
What is the green bond premium (greenium)?
The pricing difference between green bonds and conventional bonds.
What are Green Twin Bonds?
A mechanism introduced in Germany (2020) where green bonds and conventional bonds are issued with the same characteristics, allowing swaps.
Why is a green bond issuance more expensive than a conventional one?
Due to additional costs like external review, regular reporting, and impact assessments.
What are the two methods to evaluate green bond pricing?
- Bottom-up approach → Compares a green bond with a synthetic conventional bond from the same issuer.
- Top-down approach → Compares a green bond index with a conventional bond index with similar characteristics
What are social bonds?
Bonds that fund projects with positive social impacts.
What are the four core principles of social bonds?
- Use of proceeds
- Process for project evaluation & selection
- Management of proceeds
- Reporting
What are some eligible social project categories?
- Affordable infrastructure
- Access to essential services
- Affordable housing
- Employment generation
- Food security
Who are the target populations for social bonds?
- Marginalized groups
- People with disabilities
- Undereducated individuals
- Unemployed people
What is a sustainability-linked bond (SLB)?
A forward-looking performance-based bond where financial characteristics change if ESG targets are met or missed.
What are the two key principles of SLBs?
- A sustainable bond structure
- A step-up coupon if KPIs are not met
What are transition bonds?
Bonds issued by high-carbon industries to finance their shift to lower emissions.
What do transition bonds fund?
- Renewable energy developments
- Energy efficiency upgrades
