Debut issuance as a share of the sustainable bond market has dipped to a record low amid rising borrowing costs, dampening companies’ efforts to raise trillions of dollars needed to tackle climate change.
First-time issuers around the world have contributed just 21% of the roughly $677 billion raised in sales of new green, social, sustainability and sustainability-linked bonds this year through September 15, according to Bloomberg-compiled data. That’s the smallest contribution since the inception of the green debt market in 2007.
First-timers must incur costs to develop a bond framework outlining how the proceeds will be used, get external verification and an additional burden of reporting to investors on the use of proceeds annually. The bond market has gotten “incredibly more sophisticated,” with ESG considerations now baked into conventional bond spreads, according to Moshe Tomkiewicz, head of investment-grade debt capital markets at Mizuho Financial Group’s Americas arm.
Energy transition investments — including in renewable energy and electric vehicles — hit a record $1.1 trillion last year, according to BloombergNEF. Still, investments must triple for the rest of this decade to get on track for net zero. “As the overall amount of capital that is allocated and required for these projects grows, you’re going to see a similar growth trajectory in the green bond market,” he said.
“When you think about the opportunity to do a transaction of size, the public fixed income market is the easiest place to get that done,” said Liberatore.ESG bond sales in the US have plunged amid a pushback by some politicians. The backlash is eroding the price advantage that borrowers get for selling dollar-denominated sustainable bonds, the so-called greenium, according to HSBC Holdings Plc.
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