Corporations are borrowing for environmentally-friendly projects at a record pace and buyers can’t get enough of the debt.
That’s why sales of “green” bonds are also hitting record levels. As companies across the globe raise funds to pay for climate change ventures, institutional investors are increasingly conscious of how their money is being used. The only real impediment to growth is a lack of sustainable projects needing cash.
“This is not waiting for anyone,” said Christopher Flensborg, head of climate and sustainable finance at Sweden’s Skandinaviska Enskilda Banken. “Pollution control and resource efficiency will be a driver for performance going forward,” Flensborg, whose bank is a major green-bond arranger, said in a telephone interview Wednesday.
Issuance of bonds to finance initiatives from wind farms to battery technology surged to almost $140 billion though Sept. 18, a 60% year-on-year leap. Flensborg says this year’s sales could total $240 billion, boosted by new companies entering the market. That compares to $135 billion sold in all of 2018, data compiled by Bloomberg show.
Bank of America, one of the leading underwriters of green bonds worldwide, also expects to see more companies borrow. “We are in active discussions with potential issuers of green bonds from sectors that have never issued before in the U.S.,” Steven Nichols, head of the bank’s ESG capital markets efforts for the Americas, said in a telephone interview on September 13.
This year featured the first green telecom offering in the U.S., a debut from an industrial company, as well as additional issuance from the utility and real estate sectors — spaces that have routinely accessed the the green bond market in the past.
“We’ve seen ESG-focused investing grow dramatically in the U.S. over the past few years, signaling that sustainability commitment has become increasingly important,” said Nichols.
“Sustainable investing is receiving growing attention from ‘traditional’ investors, in particular as expected returns don’t differ from those of standard assets,” according to Thomas Wacker, head of credit at UBS Global Wealth Management, which oversees more than $2.48 trillion in invested assets.
Stamp of Approval
Investors like green bonds because they show how a company’s management thinks ahead, said Stephen Liberatore, a managing director at asset manager Nuveen, who oversees $10 billion in responsible investing fixed income strategies.
“They are addressing longer-term issues and dealing with those risk factors right now versus not addressing them at all,” said Liberatore in a September 16 phone interview. “It speaks to the quality of that particular management team.”
Credit rating providers have also started looking more at ESG factors when assessing risk. “ESG credit factors can influence ratings,” said S&P Global Ratings in a September 12 note.
A (Growing) Drop in the Bucket
While corporations have raised more debt for environmental endeavors in the first half of 2019 than the entire year of 2018, according to a report by BloombergNEF, the amount is still quite small compared to the $1.8 trillion global corporate bond market.
The broader sustainable debt market, including bonds and loans deemed to have positive environmental or social impact, is expected to reach at least $380 billion this year, BNEF says. And countries themselves will be big drivers of that.
“Governments and corporations will have to spend trillions of dollars to tackle climate change,” said Bill Sokol, a product manager at Van Eck, which has a green bond exchange-traded fund. “Green bonds are very well suited to fund these types of infrastructure investments around the world.”