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Monday 07 October 2019
ESG, Fixed income
Policymakers continue to implement comprehensive strategies to fostering sustainable finance. Most notably, in March 2018, the European Commission adopted its action plan resting on three pillars: (i) re-orienting capital flows towards sustainable investments; (ii) managing financial risks stemming from climate change; and (iii) fostering transparency and long-termism in financial activities.
In a 2016 paper, William Nordhaus, the 2018 Nobel Prize recipient, wrote that while there is uncertainty on the path of climate change and its impact in the future, this does not reduce the urgency of taking strong climate-change policies today1. Indeed, he mentioned in a recent speech2 three key actions for organizations, companies and financial institutions to undertake for an efficient fight against climate change:
The financial industry has a clear role to play in channeling capital to the relevant sectors, actors and projects. They can direct them in such a way that each player follow good practices. In particular, ‘greening’ fixed income markets, the largest source of financing, will be critical if the financial sector successfully embraces the Paris climate agreement goals.
However, there are two major obstacles for fixed income investors seeking to invest in green and sustainable solutions: yield, and additionality.
Indeed, the green bond market is concentrated on supranationals, sovereigns or large utilities. Therefore, two problems may occur:
To address these obstacles, new frontiers of green finance are to be set:
Amundi partners with key players to answer these issues, employing a holistic approach. First, stoking the demand side of green markets by launching dedicated debt funds. Second, supporting the supply side of these new fixed income instruments via the definition and dissemination of best practices and standards for these nascent segments. These can be done via Scientific Committees incorporated within these programs, the publication of research pieces, technical support to issuers etc. And third, working hand-in-hand with leading institutions, to boost the depth and breadth of the innovations.
[1] William D. Nordhaus, “Projections and uncertainties about climate change in an era of minimal climate policies”, NBER Working Paper Series, 2016.
[2] Amundi World Investment Forum,
William D. Nordhaus keynote speech available here
[3] Source :
https://www.eib.org/
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Moving towards 2020, volatility, agility and liquidity are the keywords for multi-asset investors: Accommodative central banks, economic slowdown and geopolitical hotspots will continue to move the market, offering opportunities.
Over the past years, the global investor community continued to integrate risks related to climate change into investment decision making. Such a level of mobilization has yet to materialize for the consideration of social risk.
“Slowdown in global growth with subdued inflation and dovish Central Banks (CB) committed to avoid further economic deceleration are trends that should remain favourable for bond investors.” begins Eric Brard, Head of Fixed Income at Amundi. “On one side, investors should limit the upside in core bond yields and, on the other, support the credit market, despite the strong spread compression in this first part of the year. An increasingly selective approach will be crucial.”