Fitch report details sustainable bond proceeds largely go to climate mitigation


Issuers of green and sustainability bonds are mostly focusing on climate mitigation initiatives to reduce emissions, often at the expense of climate adaptation efforts, a Fitch report has found. 

Most issuers received excellent or good scores for the Use of Proceeds (UoPs), demonstrating transparency and ambition in project selection. Climate mitigation categories dominate UoP selection, especially renewable energy, energy efficiency, clean transport, and green buildings.

US issuers lead in renewable energy UoPs, while European countries show strong bank involvement in green loans for the energy sector. Sustainability bonds lean heavily towards green UoPs (63%) with green buildings as the most common category.

The annual cost of climate adaptation is estimated to reach between $160bn to $340bn by 2030, highlighting the need for more focus on adaptation strategies. Only a small percentage of bonds specify that a large proportion of proceeds will be allocated to new projects.

Social bonds primarily focus on affordable housing, socioeconomic advancement, and affordable basic infrastructure, with food security being the least common category. Issuers are underfunding areas such as pollution prevention, employment generation, and climate adaptation.

Within sustainability bonds, social categories account for 37% of UoPs, with loans to underrepresented minority-owned SMEs being the most common social aspect. The report emphasizes the need to focus on and finance climate adaptation, especially in sectors like real estate.

The report poignantly stated, “We believe going beyond mitigation to focus on and finance climate adaptation is paramount, particularly for sectors such as real estate that remain most exposed to physical climate risks and are also the largest recipient of green and sustainable instrument-backed financing.”

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