Global issuance of sustainable bonds hits record in 2021

People wearing protective masks amid the coronavirus disease (COVID-19) outbreak are reflected on an electronic board displaying Japan's Nikkei and U.S. Nasdaq index outside a brokerage in Tokyo, Japan, October 5, 2021. REUTERS/Kim Kyung-Hoon

Dec 23 (Reuters) - Companies have borrowed record sums via sustainable bonds this year, tapping demand from investors who have become more concerned about climate risks and social inequality.

Sustainable finance bond issuance totalled $859 billion this year, the highest ever, according to Refinitiv data. That compares with $534.3 billion last year.

"We have seen a variety of companies issue green or sustainable debt to demonstrate a commitment to a reduction of their carbon footprint," said David Falk, fixed income portfolio manager at Shelton Capital Management.

Reuters Graphics

Green bonds, where the money targets an environmentally friendly project, saw the highest issuance of $481.8 billion, followed by social bonds at $191.8 billion and sustainability bonds at $177.2 billion.

Reuters Graphics

Social bonds look to raise money for projects with positive social outcomes, such as improving health or providing affordable housing. Sustainability bonds are a mixture of green and social bonds.

Reuters Graphics

Some analysts expect issuance of bonds focussed on environmental, social and governance (ESG) matters to rise further next year as companies take advantage of their relatively lower cost in a rising interest rate environment.

BofA estimates investment grade ESG corporate bonds have on average priced 2.4 basis points tighter in the primary market compared to non-ESG bonds over the last four years.

"This spread premium is also growing. The increasing cost savings when issuing ESG debt should continue to support rapid market growth next year," it said.

Also, analysts said ESG bond issuance could help to allay some fears over "greenwashing," or companies exaggerating their environmental credentials to attract investors.

"You can easily see where the proceeds of the bond are going, and it makes it much easier to quantify the positive outcomes from an environmental or social perspective," said Andrew Poreda, ESG research analyst at Sage Advisory Services.

"For ESG-conscious investors concerned about 'greenwashing,' investing in these bonds may be a great option."

Data showed Europe led sustainable bond issuance this year, with proceeds of $475.9 billion, followed by the United States' $182.1 billion and the Asia-Pacific's $149.2 billion.

"On the demand side, the Sustainable Finance Disclosure Regulation (SFDR) in Europe brings mandatory ESG disclosure obligations and we can expect that this regulation will support more transparent ESG issuance," said Laure Villepelet, Head of ESG at Tikehau Capital.

According to SFDR, firms including fund houses, insurers and pension funds that provide financial products or services in the European Union will have to begin disclosing how sustainable they really are.

Reporting by Patturaja Murugaboopathy Editing by Mark Potter

Our Standards: The Thomson Reuters Trust Principles.