Supply of corporate debt labeled ‘green’ bonds from big U.S. companies soars 73% in 2021 MarketWatchSupply of corporate debt labeled ‘green’ bonds from big U.S. companies soars 73% in 2021 MarketWatchSupply of corporate debt labeled ‘green’ bonds from big U.S. companies soars 73% in 2021 MarketWatch
Impact Investing Forum 2023
London. May 04-05, 2023.
According to BofA Global, the U.S. supply of green bonds from investment-grade companies increased 73% to $84 billion in 2021, up from just under $50 billion last year and $27billion in 2019. This is due to lower borrowing costs and new global funds that target social, environmental, and good governance (ESG).
U.S. green bond issuances by big companies soar
BofA estimates that borrowing costs for U.S. investment grade companies LQD +0.08% issuing Green Bonds in the past four Years were also 2.4 basis points lower than bonds issued without a label. This makes it more attractive for large businesses to issue this type debt.
Related: OCC puts pressure on large banks for climate-change risk disclosures
The BofA team looked at green bonds priced in primary markets, which is where new bonds are first sold for funding. It found that the “primary market spreads directly reflect the amount of interest savings companies make when issuing ESG bond relative to regular bonds.”
Additionally, the U.S. investment grade bond debt of approximately $1.5 trillion was issued in 2021. “New issue pricing generally doesn’t suffer from the poor liquidity which impacts secondary market spreads for most IG-bonds.”
However, the labeling of green or other ESG bonds is still in its early stages in the U.S. It makes it difficult to identify such debt in secondary markets, where bonds trade after being marketed to investors.
Ford Motor Co. F (+11.67%), which saw its electric-vehicle sales soar in November, sold a $2.5billion green bond in the same month, making them one of the largest such issuers in the year.
Read: Ford launches $2.5 billion green bond financing in response to infrastructure deal
Apple Inc. AAPL. -1.27% and Google parent GOOG, 0.455% Alphabet have also recently sold billions of green and sustainability bonds to fund greener technologies as the cost of extreme weather linked to climate change has skyrocketed.
After nearly two years of accommodative central banks policies, the spreads of investment-grade bonds have started to narrow.
Fears of higher U.S. rates in 2022, the Omicron variant fueling a surge global COVID-19 infections, and liquidity woes ahead the Christmas holidays were blamed by stocks SPX, 0.06% Monday. The Nasdaq Composite COMP (-1.33%) is heading closer to correction territory or at least a 10% decrease from its Nov. 19 record close.
Investors and governments have also begun to pay more attention to climate risks. Global funds dedicated to ESG investments reached a record $384 Billion in November this year, an almost threefold increase over 2019, according to the BofA team. This was based on data from EPFR Global.
These groups warn that Wall Street could collapse under the pressure of a “carbon bubble”.