In our report, Impact Investing Roadmap, we defined impact investing broadly as investments that '…add to the sum total of ways that environmental and social benefits are currently being generated.' We acknowledged that this type of investing 'generally requires fresh capital' and in this fresh capital bucket, we placed 'green bonds' – more broadly defined as Impact Bonds.
Growth from just US$3 billion in issuance in 2012, to US$882 billion by year-end 2022, representing 14% of all outstanding global bonds (doubling since 2020).
In 2012, most issuance was from large multinational companies, today issuance has broadened significantly to other private and government entities, as shown in the chart below:
Similarly, initial issuance was mostly used to fund renewable energy projects, '…but over the last decade has expanded across a myriad of social, community, sustainable and climate-aligned themes and outcomes…'. While green projects, such as clean transportation, accounted for the top four uses of proceeds in 2022, 'affordable housing', 'essential services' and 'socioeconomic goals' accounted for the next three.
The report then becomes essentially a sales brochure for Nuveen’s line of impact bond products, but helpfully on page 8 includes links to more independent resources, such as the widely respected International Capital Markets Association a non-profit that is Secretariat for various impact and sustainable bond principals and related research and databases, along with the International Finance Corporation (IFC).
Have asset managers kept pace with the expansion of the impact bond market? Does your bond manager offer diversified, liquid, and cost-effective impact bond products?Possibly not; Nuveen notes that while 'these operating principles were written with private market investors in mind … a small number … have embraced the discipline and hired third parties to verify adherence to the principals'.