AFME Shares ESG Report for Q3 With Important Insights
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The Association for Financial Markets in Europe (AFME) has published its ESG report for the third quarter of this year. This report focuses on developments in sustainable finance and shows important changes in how money is used for environmental, social, and governance (ESG) projects.
The report shows that ESG funds gained $122.75 billion during this period. This means more people are investing in businesses and projects that support the environment and help society. It reveals that €116 billion came from ESG bonds and loans. This is 6% more than last year during the same period but 27% less than the previous quarter.
France, Germany, And Italy Lead In ESG bond issuance
Green bonds had the highest share of new bonds, but their numbers are still below what was seen in 2021 and the year after. Green bonds are special because they raise money for projects that protect the planet. However, sustainable, social, and sustainability-linked bonds saw mixed results. While some of these bonds increased, others dropped during this period.
France, Germany, and Italy stood out in Europe for their role in ESG bond issuance. Italy had 58% of all sustainability-linked bonds, and almost half of all ESG bonds came from France or Germany. Despite some declines, ESG bonds continue to play a key role in sustainable finance.
Global ESG funds reached a record $10.5 trillion in the third quarter of this year. The amount grew by 8.7% from the second quarter and by 18.2% compared to the same time last year. This shows that ESG investing is becoming important everywhere.
Weak Goals In Sustainability-Linked Bonds Cause Concerns
Tatjana Greil Castro, an expert at Global Credit, explained why sustainability-linked bonds are facing problems. She said companies often set weak goals, called key performance indicators (KPIs), to measure success. These goals are sometimes not clear or strong enough, and when they are not met, the penalties are small. This has caused some investors to lose interest.
Justine Leigh-Bell, from the Anthropocene Fixed Income Institute, explained more about the challenges. She said green bonds are easier for investors to trust because they support clear projects, like solar panels or planting trees. She also said sustainability-linked bonds have unclear rules and fewer rewards, so investors are less interested.
Leigh-Bell revealed that the way these bonds are handled in Europe is not clear. This creates confusion and slows their growth. She believes these bonds have a lot of potential to help finance the transition to a more sustainable future. For this to happen, investors need stronger goals and better rewards to encourage issuers to do more.
The AFME report shows progress in some parts but also highlights some problems. Green bonds are still liked because they have a clear goal, but sustainability-linked bonds need changes to interest more investors. Experts think clear rules and better goals will help build a brighter future as sustainable finance grows.
