Aegon AM: Investors should beware of the rise of greenwashing in the European credit market

Investors need to beware of the rise of greenwashing in the European corporate bond market, according to Euan McNeil, Fixed Income Investment Manager at Aegon Investment Management.

In recent years, one of the defining developments in the European corporate bond market has been the rapid growth in the issuance of ESG-labelled bonds. While he believes this is a broadly positive trend, McNeil warns that the rapid growth of these bonds has been accompanied by a rise in greenwashing by firms keen to bolster their ESG credentials.

McNeil argues that investors need to look at companies that provide genuinely compelling ethical propositions. Only firms with an “unquestionable commitment” to the fundamentals of ESG should be worth considering, he says.

“Even as cynical bond investors, it is encouraging to support ESG-labelled debt from a company or an industry with an unquestionable commitment to improving the environment. In these situations, the decision to invest or not simply comes down to price. Recently we saw green debt issued by Orsted, a Danish renewable energy company that is committed to achieving a world that runs entirely on green energy. Orsted has extensive operations in the UK through its wind farms and has been a frequent issuer of both euro and sterling corporate bonds over the past 15 years", he points out.

Finally, he concludes that "being able to finance such infrastructure and lend to a company with such a proven commitment to renewable energy was one of our easier recent investment decisions, helped by a slightly weaker market backdrop at the time that was more attractive to lenders.”