Complex ESG debt products prove too risky for some investors

Scandinavia's biggest arranger of sustainable debt says investors will probably continue to favor green bonds over other more complex ESG fixed-income products for years to come.

Photo: Thomas Borberg/Digital foto

E. Derry Hubbard, global head of debt capital markets for Danske Bank, says investors generally prefer products that explicitly finance sustainable projects, which green bonds do. Sustainability-linked bonds, known as SLBs, are growing fast as a debt class, but are still perceived as less transparent and therefore riskier, he said.

Ultimately, the goals that SLB issuers commit to are "not as defined as-use-of proceeds", which is a feature of green bonds but not of sustainability-linked debt, Hubbard said.

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