Chief finance officers of more than 60 international companies have linked roughly half of their companies’ financing to environmental, social, and governance (ESG) goals. All are part of a UN task force pledged to tie half of all financing to ESG targets by 2025, reports the Wall Street Journal.
The companies, including Verizon Communications Inc, Anheuser-Busch InBev SA, and energy company Enel SpA have all signed on to tie about half their debts, which include corporate bond issuances, to sustainability goals. Currently, the debt linked collectively sits at 27% as of the end of last year.
Some members of the group, such as Enel, Tesco PLC, and H&M have also issued sustainability-linked bonds, which can be used for anything but have a variable interest rate depending on if the company meets its agreed-upon sustainability goals. This is a market that has grown in the last year, along with other generalized ESG debt issuances; year-to-date, companies have raised $49.7 billion in sustainability bonds, compared to $3.6 billion over the same timeframe last year, reported data provider Refinitiv.
The taskforce is currently taking aim at the rest of their industries in recruiting new members and expanding investment in the UN’s sustainability goals.
“The idea is to expand the group to make sure it’s as representative as possible of a broader set of companies and sectors and countries,” said Fernando Tennenbaum, AB InBev’s chief financial officer.
SPDR Invests in ESG Linked Bonds
SSGA currently offers a fixed income ETF with an ESG lens, the SPDR Bloomberg SASB Corporate Bond ESG Select ETF (RBND). The fund tracks the Bloomberg SASB US Corporate Ex-Controversies Select Index and provides a sampling strategy to generally carry the same risk and returns of the Index.
The Index measures the performance of investment-grade corporate bonds issued by companies with certain ESG qualities that also have risk and return qualities of the parent Index, the Bloomberg Barclays US Corporate Index. The parent index has public-issued, fixed-rate, taxable, U.S. dollar-denominated corporate bonds. These bonds are issued by U.S. and non-U.S. industrial, utility, and financial institutions with a maturity of a year or greater and with $300 million or more of par amount outstanding.
The index uses a Responsibility (R-Factor) developed by SSGA to score companies in the parent index for ESG criteria. The R-Factor takes into account ESG and corporate governance factors when scoring companies. It excludes companies that derive significant revenue from any of the following: extreme event controversies, controversial weapons, UN Global Compact Violations, civilian firearms, thermal coal extraction, and tobacco. Companies that do not have an R-Factor in the parent index are also removed.
The securities within the index are weighted to maximize the R-Factor of the index while also minimizing total risk compared to the parent index.
RBND can be used as a core building block for ESG investing and carries an expense ratio of 0.12%.
For more news, information, and strategy, visit the ESG Channel.