The critical role of high-quality impact reporting in sustainable investing

CONTRIBUTORS

David Zahn, CFA, FRM

Head of European Fixed Income,
Portfolio Manager
United Kingdom

Justyna Tasic, Ph.D.

Fixed Income Sustainability Manager
Sustainability & Europe Fixed Income

Ania Cwojdzinska, Ph.D.

Impact Analyst
Sustainability & Europe Fixed Income

Preview

The world of finance is constantly changing, and one of the prominent trends is the increasing attention to GSS investments. The issuance of GSS bonds has become a beacon for progress, signaling a commitment to environmental stewardship and social well-being.

We believe impact investing has a great future with huge potential opportunities. However, not all bonds are equally effective, so careful analysis is needed to achieve the greatest potential impact. GSS investors should be able to see clear and reliable reports on the impact of their choices. , we explore why reporting is not only a compliance issue but also a key factor for the effectiveness of sustainable finance.

Key takeaways:

The market for green, social, and sustainable (GSS) investments is receiving increased attention from investors who are looking to generate a positive impact alongside financial returns.
However, the complex and ever-changing GSS investing regulatory landscape means that high-quality impact reporting is necessary to form the foundation for trust in the financial sector.
Transparent and thorough impact reporting amplifies the effectiveness of sustainable investments, by serving as a feedback mechanism, supporting informed decision making, and helping to meet regulatory requirements.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value.

Active management does not ensure gains or protect against market declines.

The manager may consider environmental, social and governance (ESG) criteria in the research or investment process; however, ESG considerations may not be a determinative factor in security selection. In addition, the manager may not assess every investment for ESG criteria, and not every ESG factor may be identified or evaluated. The managers’ environmental, social and governance (ESG) strategies may limit the types and number of investments available and, as a result, may forgo favorable market opportunities or underperform strategies that are not subject to such criteria. There is no guarantee that the strategy's ESG directives will be successful or will result in better performance.

Green bonds may not result in direct environmental benefits, and the issuer may not use proceeds as intended or to appropriate new or additional projects.

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