Unlocking the Power of Labelled Bonds: A Roadmap for Investors to Achieve Net Zero Commitments

In the face of the global climate crisis, investors are increasingly seeking ways to align their investment portfolios with the transition to a low-carbon economy. Labelled bonds, such as green and sustainability-linked bonds, offer a unique opportunity for investors to direct capital towards climate-friendly projects and activities. This guidance provides a comprehensive framework for investors to engage with issuers on labelled bonds, fulfilling their net zero commitments and driving real-world emissions reductions.

Harnessing the Potential of Labelled Bonds for Net Zero Transition

Aligning Labelled Bonds with Net Zero Targets

Labelled bonds have emerged as a powerful tool for investors to channel funds towards sustainable initiatives and climate-aligned activities. By tying fresh capital to Paris-aligned climate targets and decarbonization efforts, these instruments enable investors to directly support the transition to a net zero economy. However, the current landscape reveals that labelled bonds only account for a small fraction of the total issuance volume, and the growth in sustainability-linked bonds has plateaued. This guidance aims to address this gap by promoting best practices for aligning labelled bonds with the net zero transition, empowering investors to drive meaningful change.

Engaging with Issuers on Labelled Bonds

Effective engagement with bond issuers is crucial for investors to ensure the integrity and impact of labelled bonds. This guidance explores a range of approaches to engaging with issuers, from the pre-issuance stage to post-issuance monitoring and evaluation. By proactively collaborating with issuers, investors can shape the design and implementation of labelled bonds, ensuring they are truly aligned with net zero commitments and driving real-world emissions reductions.

Expanding the Ecosystem of Labelled Bonds

The success of labelled bonds in supporting the net zero transition extends beyond the direct relationship between investors and issuers. This guidance also examines the broader ecosystem of policymakers, regulators, and other key stakeholders who play a crucial role in shaping the labelled bond market. By engaging with this wider ecosystem, investors can contribute to the development of robust standards, guidelines, and policies that foster the growth and integrity of the labelled bond market, ultimately accelerating the transition to a sustainable future.

Unlabelled Debt: An Untapped Opportunity

While the focus of this guidance is on labelled bonds, the authors acknowledge the importance of unlabelled debt as an additional avenue for financing the transition to a low-carbon economy. The IIGCC Net Zero Bondholder Stewardship Guidance and the Potential of Unlabelled Debt discussion paper provide valuable insights and recommendations for investors seeking to leverage unlabelled debt to support their net zero commitments.

Collaborative Approach to Net Zero Bondholder Stewardship

The development of this guidance has been a collaborative effort, led by Laith Cahill at IIGCC and involving the IIGCC Bondholder Stewardship working group members, including co-chairs Chandra Gopinathan from Railpen and Sarah Peasey from Neuberger Berman. This collaborative approach reflects the importance of collective action in driving the net zero transition through the strategic use of labelled bonds and other debt instruments.