Pitfalls of green labelling – Fidelity International

Fixed income investors have a vital role to play in accelerating the shift to a net zero world by 2050. Fidelity's Kris Atkinson, Sajiv Vaid and Ana Victoria Quaas discuss why investors should not solely restrict themselves to the green bond market given its pitfalls.

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... Green bonds are a valuable investment class but exhibit a series of drawbacks as a sustainable instrument. Not all green bonds are equal, with the proceeds not always destined for climate related projects. There is no consistent measurement system for assessing the impact of green bond financed projects on the environment and finding reliable and insightful data remains difficult.

Green bond investors are likely to settle for reduced diversification, lower yields, and thinner liquidity. Standardisation within the green bond industry would go a long way towards resolving many of these issues. It would include the consolidation of trade bodies, coupled with standardised and auditable pre and post issuance reporting frameworks / schedules, with independent valuations. Nevertheless, sustainable investors should not restrict themselves to the green bond market. A portfolio comprising of a mixture of green and conventional bonds can deliver positive returns, while reducing carbon emissions.

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