Climate risk pricing

Auto bonds: Any colour so long as it is green

Written by Josephine Richardson & Ulf Erlandsson

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Road vehicles are a significant source of GHG emissions, and therefore transitioning the auto manufacturing sector will be essential to tackling climate change. A number of auto manufacturers across several regions, have issued green bonds.

Both General Motors and Ford have come to market with large deals, which is a clear sign of continued support of the product in this sector.

The auto green bonds do not always price with as substantial a greenium as seen in many other segments of the green bond market. Many are trading flat to vanilla issuance, and some even wider.

We present three ways for different investors to support the sector's clean transition through bond positioning. An estimated 48.6% of oil demand in OECD comes from road transportation where 60-85% is due to cars and light vans. While there is a lot of pressure for energy companies to report and look to reduce their Scope 3 emissions, that seems only possible alongside a meaningful transition away from petrol as a fuel for autos.

At COP26 a deal was announced to end sale of fossil fuel vehicles by 2040 or earlier, however also notable was the absence of certain countries and manufacturers.

About the authors

Josephine Richardson

Josephine Richardson

Managing Director, Head of Research

Based in London, Jo leads AFII’s research and a global team supporting fixed income investors as they align their portfolios with climate and sustainability goals. She joined AFII after 18 years in fixed income markets at JPMorgan.

Ulf Erlandsson

Ulf Erlandsson

Founder, Board member

Dr Ulf Erlandsson founded the Anthropocene Fixed Income Institute and was its first CEO. A pioneer of climate-focused fixed income portfolio management, he was named Environmental Finance’s Bond Personality of the Year 2022.

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