Breakingviews: Climate-bond cold shoulder gets harder to justify

The inconvenient truth about climate-linked debt is that, while it’s a great idea, supply and demand are still relatively small. Chief among investors’ rationale for not being big buyers is a lack of either transparency, an easy way to compare deals, or both. That defense is growing weaker.

Nasdaq on Tuesday launched the Sustainable Bond Network, a publicly available web app that allows issuers to upload the most salient data and information about their environment-focused debt deals in a standardized fashion. Investors like Allianz and issuers including Freddie Mac have signed on as advisers. Another member, the San Francisco Public Utilities Commission, has timed a $630 million green bond for the city’s water projects to the occasion, hoping to sell its debt to international investors for the first time.

One obvious benefit of the platform is that investors have so far had to wade through various labels cooked up by investment bankers, from green to transition bonds, sustainable or sustainable-development-goal bonds, and numerous other monikers. Even so, issuers have already been providing plenty of detail. San Francisco, for example, has disclosed where and how proceeds are spent, and how its previous green bonds provided community benefits, furthered gender equality and fit with United Nations goals.

Financially, such bonds should appeal already. With some $12.5 trillion of negative-yielding mostly sovereign debt in the system, coupons north of 3% ought to be hard to pass up. The Bank of America green-bond index has yielded a similar return to the Intercontinental Exchange’s high-grade bond index over the past five years, UBS points out, while being less exposed to cyclical industries. The green bond market has notched up a record $170 billion of new deals this year, according to Refinitiv, but that’s still only around 2% of total issuance. Investors will need better excuses in 2020.