Appetite Increases for Green Bonds but Investors Demand More Education and Transparency

  • Survey by Natixis and the California State Treasurer’s Office reveals challenges and opportunities of green bond market
  • 78% of California residents believe it’s important to make the world a better place while growing assets [1]
  • Misconceptions around ESG present barriers to investing; 72% want greater transparency and standardization of reporting

Press Release – BOSTON and SACRAMENTO, Feb. 28, 2018 – Individual investors in California are keen to make the world a better place while growing their personal assets, but engaging investors in the green bond market will require a deeper understanding of their motivations, perceptions and knowledge gaps. Natixis Investment Managers’ Center for Investment Insight and the California State Treasurer’s Office announced today the findings from a new survey of 500 California residents during the California State Treasurer’s Green Bonds Symposium. The study explores the challenges and opportunities of engaging investors in the state’s growing green bond market.

The survey polled individual investors from California on their investment preferences and expectations, their commitment toward environmental, social and governance (ESG) investment principles, and their predisposition to act on green intentions. Key to motivating investors to participate in the California green bond market will be education, transparency and the development of an investment proposition, the study finds. While 66% of California respondents say they would invest in green bonds because of their potential environmental impact, only 53% say they are knowledgeable about ESG investing and merely 29% claim to know what green bonds are.

“The majority of California residents want their investments to have a positive social and environmental impact,” said David Goodsell, Executive Director of Natixis’ Center for Investor Insight. “But many need guidance before they can act on their preferences when it comes to investing in green bonds. Public outreach and education will be critical in dispelling some of the misconceptions associated with ESG investing, and we can jumpstart these initiatives by having conversations with the broader advisor community.”

The research offers four key insights on California residents’ sentiment towards green bonds:

  • Californians want to use their assets to make a difference: Survey respondents said they want their investments to reflect their personal values (77%), to know their assets are doing social good (76%), to invest in companies that are ethically run (82%), and to invest in companies that have a positive social impact (77%).
  • Investors have misconceptions around ESG investing: Some individuals perceive limitations around ESG investments, with 46% believing they have to give up return potential to invest in green bonds and 55% believing that costs will be higher without green bonds delivering adequate returns. However, green bonds are generally not limited in their return potential, nor do green bonds generally come at a higher cost. Three-quarters of respondents say they believe there is a lack of standardized guidelines on what constitutes as a green investment, therefore we believe public education will be essential to dispelling such misconceptions.
  • Californians are prepared to act with enlightened self-interest: Californians emphasize the potential investment benefits of municipal bonds over their community impact. When asked for their main reasons for investing in municipal bonds, they first focus on direct portfolio advantages, citing tax-free income (55%), low risk (51%) and stability (39%) as the main drivers. Investors in California may not fully understand the potential tax benefit these securities could provide given that only 11% said they would invest to manage tax liability.
  • Financial and non-financial variables factor into green investing: Top considerations when selecting a green bond investment include return on a bond over its lifetime (50%), how long it takes to mature (40%) and amount paid at maturity (36%). However, 66% say they would invest in green bonds because of their potential environmental impact.

“It’s not surprising that nearly four out of five Californians believe it’s important that their investments shape a better world. This research demonstrates there is strong momentum for the leadership role we are taking in California to find solutions to pay for projects that generate solar and wind power, reduce methane emissions, provide clean drinking water, and more,” said John Chiang, California State Treasurer. “At a time when the White House has abandoned its leadership role in the fight against global warming, California stands with the rest of the world that has declared climate change is an urgent and potentially irreversible threat to human societies and the planet.”

Success Factors for California’s Green Bond Market

The survey findings indicate that many worry about accurate reporting and verification around green investing. Nearly three-quarters of investors (72%) say that greater transparency and standardization of reporting would increase their desire for green bonds, and six in ten would be willing to pay more for their investment if it meant greater transparency. Californians are willing to accept validation on a wide range of public and personal sources in order to achieve transparency, starting with the media (58%), reports from the issuer (47%) and a financial advisor (45%). Another factor is access to green issuances; overall, more than half of investors say they would prefer buying green bonds through a fund (59%) compared to individual securities (41%).

“As the green bond market matures, we are pleased to see that issuance is growing in tandem with investors’ interests,” said Chris Wigley, Portfolio Manager at Mirova, a responsible investing affiliate of Natixis Investment Managers. “This symbiotic relationship indicates that both governments and corporations are making the effort to transition to a lower carbon world, which is also motivating the individual investor to consider incorporating ESG into their portfolios.”
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