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11.12.2020 62

Responsible investing expands further with green convertible bonds

Published December 11, 2020

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Abstract


Convertible bonds go green

While investors have been aware of the merits of investing responsibly for a long time, the Covid-19 crisis is likely to increase the focus on ESG principles, which should play a critical role in the emergence from the crisis. In this context, green bond financing has recently spilled over to convertible bonds, with 2020 seeing a record level of new issuance for the asset class. Convertible bonds -- which are corporate bonds that can be converted by the holder into the common stock of the issuing company -- have proved resilient during the Covid-19 crisis. Such resilience, along with a record level of new issuance -- above $100bn YTD -- has sparked renewed interest in the asset class. Interestingly, for investors and corporates alike, issuance of green convertible bonds is also on the rise. Before 2020, only two green convertible bonds were issued – namely, Sumitomo Forestry (Japan) in 2018 and Link REIT (Hong Kong) in 2019.

Since May 2020, nine companies have issued green convertible bonds, including Neoen on 28 May, with the first European green convertible bond for €170m. Neoen is a renewable energy company that builds and manages power plants in solar, wind and biomass. Proceeds from its green convertible bonds will be allocated to finance or refinance renewable energy production and storage activities consistent with EU requirements. This was followed by Électricité de France (EDF), which sold a historic €2.4bn green convertible bond on 8 September. This sale was significant in terms of the sheer size of the deal and marks another step in the spread of socially responsible investing to convertible bonds. EDF plans to use the proceeds from this bond to double net installed renewable energy capacity over the next ten years. Although technically not a ‘green’ bond, it is interesting to note that Schneider Electric launched the first sustainability-linked convertible bond in November which links the performance to three KPIs (CO2 emissions, gender diversity, and number of underprivileged people trained in energy management) to the cost of the coupon paid to investors.

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