Banks cashing in on ESG bonds amid climate crisis The Straits TimesBanks cashing in on ESG bonds amid climate crisis The Straits TimesBanks cashing in on ESG bonds amid climate crisis The Straits Times
Impact Investing Forum 2023
London. Dec 05-06, 2023.
(BLOOMBERG – Although many banks have been criticized for helping fossil fuel producers raise money in debt markets, the entire banking industry is making more money by underwriting ESG-related bonds sales.
According to Bloomberg data, banks have made about US$3.6 billion (S$4.9 trillion) in fees from the sale of bonds that are advertised as instruments of sustainable, green or social development for companies, governments, and other organisations.
This is more than twice the US$1.6 billion banks have taken in this year by issuing debt to fossil-fuel companies.
These numbers are further evidence of the seemingly endless stream of money flowing into ESG (environmental, social and governance) investing. Bloomberg data shows that ESG-related bonds worth US$750 billion were issued this year, compared to US$468 billion in 2020. It is unclear whether these bonds actually fund the claims they make, given the growing phenomenon known as greenwashing, in which industries try to placate governments and consumers more aware of the effects of climate change.
Analysts believe that banks are simply following the money when it comes to banking. “Investment banks are almost always driven to what customers want, and demand isn’t likely to wane anytime soon,” said Mr Jeff Harte of Piper Sandler.
He said that the financial industry is being pressured to take action on the planet’s deteriorating condition, and that this is creating an incentive to be involved in ESG.
JPMorgan Chase & Co is the world’s largest debt underwriter and is the No. JPMorgan Chase & Co is the No. 1 arranger of bonds sales for fossil fuel industries. Even though it plays a key role in helping companies that are most responsible for global warming and has become more dependent on ESG, JPMorgan is now even more dependent.
ESG-related debt instruments now account for almost 13 percent of the bank’s total bond underwriting business. This is an increase of 5% from last year.
JPMorgan is now earning more from underwriting ESG debt (US$223 million so this year) than it is from arranging bonds for fossil-fuel companies (US$94 million). Comparatively, the lender earned US$16 million in ESG sales and US$107 millions from fossil-fuel debt sales in 2016.
The industry is mirroring what’s happening at JPMorgan. BNP Paribas is a giant French bank that now generates 21% of its total debt underwriting fees from ESG compared to 1% five years ago.
Paris-based Credit Agricole, one of the largest banks in the world, is the most focused on ESG. This year, 31% of Credit Agricole’s debt underwriting came from this market. Citigroup’s figure is 11%, which is a significant increase from 0.5% in 2016.
Analyst at Wells Fargo Securities Mr Mike Mayo said that he expects the numbers to grow. He said that it was still early days for climate financing and ESG facilitation. “In baseball terms, it’s the first inning.”
Even if all that debt were funding solid ESG initiatives the world would still need five times as much money to address climate disruptions. Mr Mayo stated that banks are more than happy help make this happen.
He stated that banks can be profitable if they do what is best for society and the environment. “We’re talking here about for-profit institutions.”