January ESG Bonds Hit Record-Breaking $150 Billion

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by | Feb 6, 2024

Global sales of green, social, sustainability, and sustainability-linked bonds amounted to $149.5 billion in January, marking the most ESG bond sales for the month since the start of the green debt market in 2007, according to a Bloomberg report.

The record-breaking sales are mainly attributed to low borrowing costs and heightened investor demand — more than 540 bond sellers, the most in over two decades, took part in primary markets in January. Global sales were dominated by governments and development banks, and top bond underwriters were BNP Paribas and Bank of America. Top issuers, according to Bloomberg, were in France, which achieved investor orders for its $8.6 billion green deal, the World Bank Group, and the European Investment Bank.

Bloomberg also said that last year, the Federal Reserve hiked up interest rates, so issuers are now looking to take advantage of the more favorable funding environment.

Green Bonds Top Sales, SLBs Lose Traction

Green bond sales amounts were the largest category of sustainable debt, totaling $84.2 billion, while sustainability bonds totaled $32.4 billion, both of which were records for January. Sustainability-linked bonds (SLBs) were less popular, totaling about $3.7 billion.

Bloomberg said that sustainable debt and sustainability bonds are more popular than SLBs as they can be linked directly to their impact. Meanwhile, SLBs may account for a wider range of uses, including everyday business operations, resulting in less direct investment impact.

The shift away from SLBs may also be heightened by increased regulation as some companies have faced legal trouble for unclear, indirect investment or supporting sustainability projects that did not deliver what they claimed.

“The market prefers use-of-proceeds bonds because you can then tie it back to actually having an impact,” said Scott Krohn, senior vice president and treasurer for Verizon Communications, in the Bloomberg report. “There’s going to continue to be demand, especially for the use of proceeds bonds.”

Research Indicates Macroeconomic Trends Toward Sustainability

While ESG was once considered a risk mitigation measure, a number of investment research reports have found that companies have turned to a thematic approach towards sustainability investment in the past few years.

Many investors now see ESG investing to be a requirement for long-term financial returns, especially as companies become increasingly aware of the importance of environmental well-being in supporting their business. For example, a recent report from ABB Motion found that 92% of industrial businesses in the United States feel the effects of resource scarcity. Companies have also shown increased concern over biodiversity and land degradation as many industries rely on the continued health of specific ecosystems.

The need for investment in the clean energy transition has also gained considerable attention, especially in terms of financing for clean energy projects in developing economies. Such investment is reportedly key to meeting global decarbonization targets.

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