Sustainable Debt Issuance Hits $3 Trilloion Threshold
Sustainable debt, for green and social issues alike, continues to grow in breadth and popularity at record pace
London and New York : Sustainable debt has surpassed $3 trillion borrowed for environmental, social and governance purposes, according to the latest data compiled by research company BloombergNEF (BNEF).
This milestone highlights the rapid growth this once-niche corner of investing has seen lately, with the most recent trillion dollars issued in just the last eight months. This is compared to almost 12 years taken to reach the first trillion dollars since sustainable debt labeling began and less than 2 years to reach the second trillion.
Part of this growth is thanks to unanticipated developments in the social borrowing space in 2020. Issuance of social bonds, which are raised to accomplish social activities such as affordable housing, particularly for vulnerable target populations, soared to close to $150 billion in 2020 alone, up 720% from 2019.
Much of the social borrowing has come from sovereigns, supranational entities and government agencies. The trend has continued into 2021, with some $128 billion brought to market for social projects in the first five months of the year.
“The rapid explosion of social bonds stems from the need to alleviate the impacts of the Covid-19 pandemic on societies around the world. The growth has been driven by expected players such as government agencies and supranationals, but it remains to be seen how corporates will keep up and adopt this market” said Maia Godemer, a sustainable finance associate at BNEF.
It is not only social bonds that are on the rise. Compared with the first five months of 2020, in 2021 through May, sustainability bonds grew by 320%, green bonds by 142%, and sustainability-linked loans by 253%. This rapid expansion is unprecedented and there is no clear stopping point in sight.
Mallory Rutigliano, a BNEF sustainable finance associate, commented: “Green bonds are the largest and most longstanding theme in the sustainable debt market, but the universe of sustainability flavors is now rapidly becoming more balanced.
Social and environmental themes are each making up large components of the market, and borrowing tied to sustainability targets, known as sustainability-linked debt, continues to grow alongside that for specific ESG projects.”
Sustainability-themed financial instruments continue to face scrutiny over issues such as labeling inconsistencies from issuers and voluntary and mandatory standards and definitions.
Keeping ‘greenwashing’ at bay is also of concern, particularly from heavy-emitting industries. Despite these concerns, borrowers, investors and lenders are showing unprecedented interest in expanding this market.
The BloombergNEF sustainable debt universe consists of green bonds, green loans, social bonds, and sustainability bonds that follow the use-of-proceeds requirements set by the International Capital Market Association (ICMA) and the Loan Market Association (LMA). The universe also includes all sustainability-linked bonds and loans that follow the guidelines set by the ICMA and the LMA.
BNEF also breaks out a subset of this universe into core “principles-aligned” bonds and loans that follow all ICMA and LMA recommendations, such as specific reporting or project selection criteria.
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