Ethical Performance
inside intelligence for responsible business


third of bond issuers fail ethical health check

September 2005

A third of the financial institutions that issue increasingly popular 'covered bonds' to investors fail to do so in a socially and environmentally responsible manner, reports a leading Swiss bank.

Bank Sarasin says its research into the sustainability of 29 covered bond issuers found nine failed to meet its social and environmental criteria, either because the bonds they issued derived from loans to countries with poor sustainability records or because the issuers themselves had poor social and environmental performance.

Covered bonds are secured by loans to public bodies such as central governments, federal states, local authorities and public-sector banks, or are backed by mortgages - and are therefore considered a safe investment with the highest credit ratings.

Around €211billion ($257bn, £142bn) worth were issued across Europe last year alone.

However, Bank Sarasin says its research showed six of the 21 issuers of non-mortgage-backed covered bonds had about half of them secured with loans to 'countries that fail to qualify for investment on sustainability grounds', which ethical investors should avoid.

Three of the issuers were deemed unsuitable for SRI investors 'because of poor internal social and environmental performance'. Klaus Kaempf, sustainability analyst at Bank Sarasin, said there was 'some catching-up to do' compared with the banking sector as a whole.

Best performers were HBOS, Northern Rock (both UK), la Caixa (Spain), Landesbank Baden-Wuerttemberg (Germany) and Kommunalkredit Austria.

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