SEB Green Bond Report: Renewable Investment Peaks, Expanded Role of ESG

SEB's Green Bond Report cover page with bamboo image

(Credit: SEB)

by | Sep 11, 2023

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SEB's Green Bond Report cover page with bamboo image

(Credit: SEB)

SEB’s new report highlights sustainable business trends in light of the rising economic cost of the climate crisis, finding increased growth in global clean energy investments and declines in sustainable-linked bond and loan financing.

The Nordic bank’s report also expects ESG to gain importance at the company level, especially as the economic loss from the climate crisis may have been underestimated.

Renewable Energy Investment at All-Time High, Still Requires Growth to Meet 2050 Targets

Strong growth was noted in renewable energy investments, with solar as a clear lead, and investments during the first half of 2023 totaled $334.5 billion, a new high for any six-month period. This level of investment, however, is still reportedly below what is required to decarbonize by 2050 and will need an additional $2 trillion annually in this decade, according to the BloombergNEF and International Energy Agency scenarios.

Policy initiatives, especially in the United States and Europe, are expected to contribute to the ramping up of investment efforts. China continues to top worldwide energy investment, with about $100 billion in investment annually.

The electric vehicle sector has seen mixed global adoption. In the Nordic countries, over half of cars sold are battery-driven, with Norway at the highest with a 90% rate. Meanwhile, in Europe and China, EV sales fall at about 20%, and the U.S. lags well behind with a rate below 10%.

Sustainable-Linked Bonds Continue to Struggle

Although green bonds have grown in 2023, with $408 billion of new issuances from the start of the year to July, the overall sustainable finance market has declined by 21% in 2023.

The report attributes this decline to sustainability-linked bonds, which have dropped in volume by about 70% compared to the same period in 2022. Many loan issuers have not been able to meet their stated sustainability targets, estimating that around a third of KPIs of European-denominated bonds are not currently on track to reach their goals.

Credibility and transparency in the sustainability-linked bonds market are cited as major obstacles to its continued growth. Lack of reporting standardization and obscure data sources also lead to difficulties in tracking progress.

Increased Relevance of ESG, Focus on Nature-Based Goals

Because of the rising importance of ESG to company goals, the report actually expects ESG to become less important as a portfolio objective, instead gaining relevance at the company level. According to projections of underestimated risk involved with global warming, ESG is expected to gain importance in the “bottom-up analysis of individual companies.”

Biodiversity and ecosystem degradation have become increasingly relevant to companies, and the report estimates that $44 trillion of the world’s economic value is moderately or highly dependent on nature. Companies are failing to address these risks quickly enough, so initiatives such as Nature Action 100 and a 2030 deadline for corporate action on nature loss have been implemented.

Along with nature-based goals, the report also promotes investment in “bluetech,” or technologies dedicated to mitigating water issues. Finally, the report emphasizes that companies will have to engage in carbon removal in order to reach their net-zero targets.

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