Sustainability and Corporate Governance Report 202
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HANDELSBANKEN FONDER – IN-DEPTH REPORT Different
types of sustainable bonds In the bond market, the range of different types of sustainable bonds is growing. Our active fixed income management is closely monitoring trends and is a major investor in green, social and sustainability bonds. At the end of 2020, the holdings totalled SEK 32 billion – a strong development since 2018 when the corresponding amount was SEK 8 billion. Green bonds In green bonds, capital is earmarked to finance various types of environmental projects. These include green buildings, renewable energy and sustainable transport solutions. We require that the bonds we invest in comply with an industry standard such as the international capital markets organisation ICMA. We also wish to see an independent review from a third party that checks the framework and reviews the issuer’s processes. Social bonds Like green bonds, the capital of social bonds is earmarked for certain projects, but in this case those that contribute a social benefit. Social bonds aim to achieve specific and measurable results for society in various categories, such as basic infrastructure, clean drinking water, sewage systems, sanitation and transport, or access to essential services, such as health, education and training, health care, financing and financial services. An issue of a social bond also defines the target group to which the financing will be provided. This could be people living below the poverty line, the low-skilled or the unemployed. Here, too, we have the same design requirements as well as requirements for an independent review from a third party that assesses frameworks and the issuer’s processes. Sustainability bonds Sustainability bonds are bonds whose capital will be used to finance both green and social projects. In other words, it is a combination of the two previously mentioned bond types. This format enables issuers to allocate the capital to both green and social areas. The distribution between the two categories can vary. Here, too, we have the same design requirements and requirements for an independent review from a third party. Sustainability-linked bonds Last year, we started to see more and more of a new form of sustainable bond known as a sustainability-linked bond (SLB). Unlike other sustainability bonds linked to specific projects, SLBs are linked to the companies’ overall transitions and sustainability targets. Here, the company can use the capital more freely, but the bond is linked to the company’s selected general sustainability goals, such as a reduction in its carbon dioxide emissions by a specific percentage. As in the aforementioned bonds, we require that the framework comply with a market standard, such as ICMA, and an independent third party assessment. In addition, the bond usually has an adjustment period, meaning that if the company has not met its targets at a given time, they must pay a higher interest rate for the remaining maturity or a premium on maturity. 68 Information about risk Past performance does not predict future returns. The value of the money invested in the fund can increase or decrease and there is no guarantee that all of your invested capital can be redeemed. The fund’s prospectus (“Informations broschyr”), fund rules and KIID are available at handelsbanken.se/funds.