Sustainable Debt And ESG Markets Have Frozen This Year

Investors have also allocated hundreds of billions of dollars to ESG-focused equity and debt exchange-traded funds. Sustainable finance is a growth market—or at least it was until this year.

As stated in the report, sustainable debt issuance is just under $1.2 trillion through November of this year. At the same time last year, companies had raised more than $1.5 trillion. The difference between this year and last is probably impossible to make up in December, which is traditionally a quiet month for distribution.

According to the report, the pull toward sustainable debt issuance across three types of bonds and two types of loans has been universal. Every instrument has seen less issuance this year than last. The report further mentioned that sustainability-linked loans have done best, relatively speaking, with issuance down 11.8 percent from a year ago. Social bonds, on the other hand, are only at about half the level of issuance as last year.

According to the Bloomberg NEF’s analysis, the decline in social bonds is mostly due to their nature and the fact that they are closely linked to issuer efforts to mitigate the impact of the coronavirus pandemic.

The two biggest categories in terms of total dollars issued, green bonds and sustainability-linked loans, are both at more than 20 percent.

According to the report, it is not just sustainable debt that is off last year’s mark. Exchange-traded funds with an environmental, social, and governance theme saw more than $130 billion in capital flow in 2021, an increase of five times more than the inflows of just two years earlier.

This year, new investments may be less than $50 billion—not only well below 2021 but even below 2020.

"Sustainable debt markets could feel a little frostier thanks in large part to the disappearance of the "greenium,"  or discount to conventional notes, that green bonds have enjoyed,"  stated the report.

Green bonds now cost more to buy than regular bonds, which makes issuers less likely to buy them.

Report concludes that, at the same time, the next three decades will require between $120 trillion and $194 trillion of investment as the global energy system decarbonizes. Many trillions of dollars’ worth of that demand will flow through sustainable debt markets.

Today’s market has good reasons for its chilly conditions. The long run, however, has many reasons for expansion.

By Sumita Pawar