Xavier Baraton is Global Chief Investment Officer of Fixed Income & Alternatives. He joined HSBC in September 2002 to head the Paris-based Credit Research team and became Global Head of Credit Research in October 2003. From 2006, Xavier managed euro credit strategies before being appointed as Head of European Fixed Income in 2008 and as Global CIO, Fixed Income in 2010. In this role, Xavier moved to our New York office in 2011 and became regional CIO North America. Having returned to Europe, he has taken on additional responsibilities as CIO for Alternatives and Real Assets. Prior to joining HSBC, Xavier spent six years at Credit Agricole CIB, including five years as Head of Credit Research. Xavier began his career in 1994 in the CCF Group. Xavier graduated from the "Ecole Centrale Paris" as an engineer with a degree in Economics and Finance in 1993 and holds a postgraduate degree in Money, Finance and Banking from Paris Panthéon Sorbonne University (France) in 1994.
Following the success of the first HSBC Real Economy Green Investment Opportunity (REGIO) Global Emerging Market (GEM) bond fund, Xavier Baraton, Global Chief Investment Officer, Fixed Income, Private Debt & Alternatives at HSBC Asset Management, assesses why green bond investment opportunities, particularly in emerging markets, are good not only for investors but also for our Planet.
Can you describe the REGIO fund in a few words?
Emerging markets have an urgent need to attract investment to mitigate the potentially devastating impacts of climate change. These markets are more likely to suffer the cost and consequences of climate change while, at the same time, being less able to self-finance solutions. Launched in conjunction with IFC (International Finance Corporation), REGIO has been designed to enhance financial flows for sustainable development in the markets that are most challenged by climate change. It is also an opportunity for institutional investors to align financial return objectives with real economy impact to deliver against the UN’s Sustainable Development Goals (SDGs) and the terms of the Paris Climate Agreement. The fund invests in a diversified portfolio that comprises emerging market green bonds issued by corporate issuers, on a buy-and-maintain basis. All green bond issuers selected in REGIO’s portfolio commit to spending the bond proceeds wholly on environmental projects, according to the Green Bond Principles from International Capital Markets Association (ICMA). Therefore, investing in green bonds is a good way to support expenditure on pollution emission reduction, technical innovation and resiliency against climate change.
Such funds offer investors the prospect of long-term, sustainable returns while delivering a real economic impact in lower Gross National Income (GNI) countries. However, by buying into REGIO fund, investors are exposed to less liquid bonds and have to remain invested for a certain number of years.
Such funds offer investors the prospect of long-term, sustainable returns while delivering a real economic impact in lower Gross National Income (GNI) countries
Following the closing of the first REGIO fund, what are the main results/take-aways?
At its launch in March the HSBC Real Economy Green Investment Opportunity GEM Bond Fund secured commitments of $592 million. REGIO was a “pathfinder” - leading the way to increased access to climate finance as well as helping to further develop the market for green bonds. By tapping into the growing appetite for emerging market green bond funds REGIO has pioneered access to competitive risk-adjusted emerging market debt (EMD) returns, while also creating opportunities to meet environmental, social and governance (ESG) and climate change objectives. We foresee this as a model for green investments offering long-term sustainable returns that primes the market for the issuance of green bonds. A fund like this can enhance the sustainable economic prospects of GNI countries while simultaneously helping them and investors achieve Paris Climate Agreement and SDG objectives.
How do you see this asset class evolving in the coming years?
Although the corporate global emerging market green bond market is still young, we expect it to grow substantially in the coming decade. By supporting and building the market for green and sustainable emerging market corporate debt, HSBC Asset Management can also promote and develop sustainable financing and investment in emerging markets and in specific regions (e.g. Asia). We expect a rise in green bonds supply led by multilaterals, sovereigns and corporates. Our confidence that green bonds supply will rise has been encouraged by the EU signalling its intention to issue green bonds for the first time: it has announced it will issue 30% of its €750 billion Next Generation recovery fund in green bond format between 2021 and 2026. We may also see an increase in developing world sovereign supply after Egypt issued the first sovereign green bond for the Middle East and North Africa in October 2020. The prospects for REGIO funds have been much enhanced against the background of a much more positive global approach to action on climate change than we have seen for a long time. And it is not only the prospect of a positive environmental impact; we think green bonds can outperform non-green bonds in credit terms too.