ESG Debt Issuance doubles year-over-year in 2021

ESG-Related Debt Issuance Trend, 2015-2021
Key Points: Issuances of ESG-related debt, including green, social, sustainability and sustainability-linked, doubled year-over-year to US$1.5 Trillion in 2021, according to Bloomberg, reflecting increased investor appetite. Demand for green bonds doubled; sustainability-linked debt grew nearly 2.5x, as corporations seek the flexibility to set their own targets.

Analysts envision strong growth in 2022, with estimates of $900 Billion from large banks, buoyed by growth in demand for ESG investments — e.g., Assets Under Management in ESG funds, i.e. those that met Morningstar’s “sustainable investment” criteria, reached $3.9 Trillion in September ’21, up from $1 T at the beginning of 2020 and, to a lesser degree, by the EU’s ~€250 B (multi-year) NextGeneration Green Bond program.

The sustainability-linked debt gained significant traction, with bonds growing to $103 B in ’21 from $11 B in ’20 and sustainability-linked loans growing to $378 B from $128 B. The attraction of sustainability-linked debt is that there are no restrictions on how the proceeds are used, unlike a green bond. Instead, the coupon paid is dependent on the issuer meeting specific ESG “Key Performance Indicators.” Although, these KPIs need not be climate related, 2/3 of those tied to issuances for the 15 months ending March 2021 related to GHG emission reduction or renewable energy, per data collected by S&P Global.

Transition financing continues to see little uptake — likely less than $5 B in 2021 per mid-year reporting by the Climate Bond Initiative — as the product lacks standardized definitions and investors are wary of perceived false claims and greenwashing.

1/26/2022