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Send Bond Covenants into Battle Against Climate Change


Financial Times  | Mon, Aug 17, 2020

by Bianca Taylor


Four powerful men leading the largest technology companies in the world sat before Congress last month for a six-hour grilling on how they chased and protected their dominance. In a not-so-distant future, a similar hearing could be held with the heads of insurance companies about how much they knew about climate change, and how little they did to encourage solutions.

Insurers need not bear such a heavy burden alone, but they should set an example for carbon mitigation. And it need not to be financially burdensome. Tweaks to existing financial instruments can have a big impact. Take bond covenants — financial tools used by lenders to place additional terms upon borrowers. While they typically address financial matters, there is nothing to say they must. Why not use them as a climate change mitigation tool?

In fact, there is already an example of this. Last year the Italian utility company Enel issued the first general-purpose, SDG-linked bond. In plain language, this means the company issued a bond for its ordinary financing needs (not specific to any one project) that was linked to Enel’s goal to promote the UN Sustainable Development Goals.

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