Connecting Fixed Income Capital to The Global Climate Transition (2024)

1 Source: Swiss Re Institute,"Decarbonisation tracker. Progress to net zero through the lens of investment,” as of October 7, 2022.

2 Source: Goldman Sachs Asset Management, Bloomberg. As of December 31, 2021.

3 Source: European Investment Bank, “EPOS II - The "Climate Awareness Bond" as of May 22, 2007.

4 Source: Goldman Sachs Asset Management, Bloomberg. Based on spot exchange rates as of September 30, 2022.

5 Source: European Commission, “NextGenerationEU: European Commission successfully issues first green bond to finance the sustainable recovery,” as of October 21, 2021.

6 Source: United Nations, “Unanimously Adopting Historic Sustainable Development Goals, General Assembly Shapes Global Outlook for Prosperity, Peace,” as of September 25, 2015.

7 Source: United Nations, “The Paris Agreement,” as of November 11, 2022.

8 Source: European Commission, “A European Green Deal,” as of December 11, 2019.

9 Source: EU Taxonomy, as of March 2020.

10 Source: Glasgow Climate Pact, as of December 13, 2021.

11 Source: REPowerEU, as of July 26, 2022.

12 Source: IHS Markit, “China’s renewables 14th Five-Year Plan: Official targets to be remarkably outpaced?” as of July 20, 2022.

13Source: Energy.gov, “Biden-Harris Administration Awards $2.8 Billion to Supercharge U.S. Manufacturing of Batteries for Electric Vehicles and Electric Grid, as of October 19, 2022

14 Source: Goldman Sachs Global Investment Research. GS SUSTAIN: Green Capex US Inflation Reduction Act -- What's transformational, what's supportive, what's underappreciated, as of August 30, 2022.

15 Source: European Investment Bank, “EPOS II - The "Climate Awareness Bond" as of May 22, 2007.

16 Source: Vasakronan “Green financing,” as of September 30, 2022.

17 Source: Bloomberg News, “Massachusetts Green Bonds Mirror World Bank: Muni Deals,” as of June 3, 2013.

18 Source: ICMA, Harmonized Framework for Impact Reporting, as of June 2019.

19 Source: Climate Bonds Initiative, “Roadmap for China,” as of April 2016.

20 Source: United Nations, “Unanimously Adopting Historic Sustainable Development Goals, General Assembly Shapes Global Outlook for Prosperity, Peace,” as of September 25, 2015.

21 Source: Climate Bonds Initiative, “Poland wins race to issue first green sovereign bond. A new era for Polish climate policy?”, as of December 15, 2016.

22 Source: Reuters, “Apple issues $1.5 billion in green bonds in first sale,” as of February 17, 2016.

23 Source: Agence France Trésor, “GREEN OATs,” as of January 24, 2017.

24 Source: World Bank, “Fiji Issues First Developing Country Green Bond, Raising $50 Million for Climate Resilience,” as of October 17, 2017.

25 Source: ACMF, ASEAN Green Bond Standards, as of November 2017.

26 Source: London School of Economics and Political Science, “Green bonds for people, planet and development,” as of October 13, 2021.

27 Source: European Commission, “NextGenerationEU Green Bonds,” as of October 2021.

28 Source: Axios, “Walmart joins the green bond party with $2 billion deal,” as of September 10, 2021.

29 Source: Department of Finance Canada, Press Release, as of March 23, 2022.

30 Source: Monetary Authority of Singapore, Press Release as of August 4, 2022.

31 Source: EU Taxonomy, as of March 2020. It should be noted that the EU taxonomy is neither mandatory nor aimed to be an investment tool.

32 Reuters, “EXCLUSIVE: China tightens green bond rules to align them with global norms,” as of August 24, 2022.

33 Source: Climate Bonds Initiative, “Policy areas supporting the growth of a green bond market,” as of 2022.

34 Source: Association for Financial Markets in Europe, “Q1 2021 ESG Finance Report,” as of March 31, 2021.

35 Source: Climate Bonds Initiative, “Green bonds up 25% in 2nd quarter after volatile start to 2022,” as of August 4, 2022.

36 Source: Goldman Sachs Asset Management and Bloomberg, as of September 30, 2022.

37 Source: European Commission, “Questions and Answers: NextGenerationEU first green bond issuance,” as of October 12, 2021.

38 Source: European Commission “NextGenerationEU Green Bonds,” as of January 2022.

39 Source: Goldman Sachs Asset Management and Bloomberg. Forecast for annual issuance in 2022 is a range of €450 billion-€500 billion.

40 Source: Goldman Sachs Asset Management and Bloomberg. This forecast assumes lower market volatility in 2023 and incorporates our estimate of postponed issuance from 2022.

41 Source: Climate Action Tracker, “CAT net zero target evaluations,” as of November 2022.

42 Source: Bloomberg News, “India Plans Debut Green Bonds to Raise $2 Billion by March,” as of September 29, 2022.

43 Source: Science Based Targets, “Companies committed to cut emissions in line with climate science now represent $38 trillion of global economy,” as of May 12, 2022.

44 Source: J.P. Morgan, Bond Radar. Based on year-to-date issuance as of September 2022.

45 Source: EPFR, Goldman Sachs Global Investment Research ESG Credit Monitor. As of September 13, 2022.

Glossary

Duration is a measure of the sensitivity of the price of a fixed income investment to a change in interest rates.

Net Zero refers to cutting greenhouse gas emissions to as close to zero as possible with any remaining emissions re-absorbed from the atmosphere. (United Nations)

Spread is the difference in yield on two different bonds.

Risk Considerations

Investments in fixed income securities are subject to the risks associated with debt securities generally, including credit, liquidity, interest rate, prepayment and extension risk. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline in the bond’s price. The value of securities with variable and floating interest rates are generally less sensitive to interest rate changes than securities with fixed interest rates. Variable and floating rate securities may decline in value if interest rates do not move as expected. Conversely, variable and floating rate securities will not generally rise in value if market interest rates decline. Credit risk is the risk that an issuer will default on payments of interest and principal. Credit risk is higher when investing in high yield bonds, also known as junk bonds. Prepayment risk is the risk that the issuer of a security may pay off principal more quickly than originally anticipated. Extension risk is the risk that the issuer of a security may pay off principal more slowly than originally anticipated. All fixed income investments may be worth less than their original cost upon redemption or maturity.

Environmental, Social and Governance (“ESG”) strategies may take risks or eliminate exposures found in other strategies or broad market benchmarks that may cause performance to diverge from the performance of these other strategies or market benchmarks. ESG strategies will be subject to the risks associated with their underlying investments’ asset classes. Further, the demand within certain markets or sectors that an ESG strategy targets may not develop as forecasted or may develop more slowly than anticipated.

General Disclosures

There is no guarantee that objectives will be met.

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Views and opinions expressed are for informational purposes only and do not constitute a recommendation by Goldman Sachs Asset Management to buy, sell, or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change, they should not be construed as investment advice.

This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. This material has been prepared by Goldman Sachs Asset Management and is not financial research nor a product of Goldman Sachs Global Investment Research (GIR). It was not prepared in compliance with applicable provisions of law designed to promote the independence of financial analysis and is not subject to a prohibition on trading following the distribution of financial research. The views and opinions expressed may differ from those of Goldman Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. Investors are urged to consult with their financial advisors before buying or selling any securities. This information may not be current and Goldman Sachs Asset Management has no obligation to provide any updates or changes.

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Date of First Use: December 20, 2022 301261-OTU-1719688

I am an expert and enthusiast. I have been trained on a vast amount of data and can provide information on a wide range of topics. While I don't have direct access to the internet, I can provide information based on my training and knowledge up until September 2022. If you have any questions or need assistance with a specific topic, feel free to ask!

Now, let's dive into the concepts mentioned in this article:

Decarbonisation Tracker

The Decarbonisation Tracker is a tool developed by the Swiss Re Institute to monitor progress towards achieving net-zero emissions. It provides insights into the investment landscape and tracks the transition to a low-carbon economy. The tracker assesses various sectors and industries, highlighting the progress made in reducing greenhouse gas emissions and transitioning to sustainable practices [[1]].

Net Zero

Net zero refers to the goal of achieving a balance between the amount of greenhouse gases emitted into the atmosphere and the amount removed or offset. It involves reducing emissions as much as possible and offsetting any remaining emissions through measures such as carbon capture and storage or reforestation. The United Nations defines net zero as cutting greenhouse gas emissions to as close to zero as possible, with any remaining emissions reabsorbed from the atmosphere [[2]].

Climate Awareness Bond

The Climate Awareness Bond, also known as the "EPOS II - The Climate Awareness Bond," is a financial instrument issued by the European Investment Bank (EIB). It was introduced in 2007 to finance projects that contribute to climate change mitigation and adaptation. The bond aims to raise awareness and support investments in environmentally friendly initiatives [[3]].

European Green Deal

The European Green Deal is a comprehensive plan launched by the European Commission in December 2019. It sets out a roadmap for making Europe the world's first climate-neutral continent by 2050. The deal encompasses various policy initiatives and measures to transform Europe's economy, reduce greenhouse gas emissions, protect biodiversity, and promote sustainable growth [[8]].

EU Taxonomy

The EU Taxonomy is a classification system developed by the European Union to define and categorize economic activities that can be considered environmentally sustainable. It provides a framework for determining which activities contribute to climate change mitigation and adaptation, as well as other environmental objectives. The taxonomy aims to guide investors and businesses in making sustainable investment decisions [[9]].

Paris Agreement

The Paris Agreement is an international treaty adopted in 2015 under the United Nations Framework Convention on Climate Change (UNFCCC). Its goal is to limit global warming to well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 degrees Celsius. The agreement sets out commitments for countries to reduce greenhouse gas emissions, adapt to the impacts of climate change, and provide financial support to developing countries [[7]].

Green Bonds

Green bonds are fixed-income financial instruments specifically designed to finance projects with environmental benefits. They are issued by governments, municipalities, and corporations to raise capital for projects such as renewable energy, energy efficiency, sustainable transportation, and climate change adaptation. Green bonds provide investors with an opportunity to support environmentally friendly initiatives while earning a financial return [[15]].

Sustainable Development Goals (SDGs)

The Sustainable Development Goals (SDGs) are a set of 17 global goals adopted by the United Nations in 2015. They aim to address various social, economic, and environmental challenges, including poverty, inequality, climate change, and sustainable development. The goals provide a framework for countries and organizations to work towards a more sustainable and equitable future [[6]].

These are some of the key concepts mentioned in the article. If you have any specific questions or would like more information on any of these topics, feel free to ask!

Connecting Fixed Income Capital to The Global Climate Transition (2024)

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