ESG-Labeled Bonds: Quality Over Quantity

After a previous surge, the issuance of ESG-labeled bonds has recently declined, despite an overall improvement in market quality. An analysis of over 11,000 ESG bonds evaluated their stated intentions against actual performance one year post-issuance, using criteria such as disclosure, ambition, and credibility.

This analysis produced strength scores for comparison among various issuers and bond vintages. The increase in strength scores indicates a decline in lower-quality issues entering the market, suggesting reduced greenwashing.

Enhanced bond quality is attributed to active investors' engagement with issuers to strengthen bond structures. Examples include a global utility's sustainability-linked bonds (SLBs) with ambitious but unmet targets and a European consumer company's SLB focused on significant emissions reductions.