Inexperienced bonds are set to drive company ESG debt out of droop in 2023 -Barclays

NEW YORK, Jan 4 (Reuters) – International gross sales of company bonds with environmental, social and governance (ESG) targets will rebound this 12 months and prime $460 billion, Barclays mentioned, after the asset class had its first setback in 2022 as greater rates of interest weighed on credit score markets.

ESG bond volumes swelled over the previous few years however dropped by 22% in 2022 amid a broader slowdown in company bond points, as corporations confronted considerably greater borrowing prices resulting from aggressive financial tightening actions by world central banks combating inflation.

Company ESG bond issuance fell to $362 billion final 12 months from $461 billion a 12 months earlier, Barclays mentioned in a credit score analysis word. It expects ESG bond gross sales to develop by 30% this 12 months and rebound to nearly the identical ranges of 2021, predominantly pushed by inexperienced bonds.

“We count on inexperienced bond issuance to proceed to dominate the market due to robust demand and an extended record of inexperienced tasks that want funding as corporations put decarbonisation plans into motion,” Charlotte Edwards, Head of ESG FICC Analysis at Barclays, mentioned within the word.

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Shifting the planet’s power system away from fuels that emit greenhouse gases will value $2 trillion a 12 months by 2030, based on estimates from the Worldwide Power Company.

Corporations and banks have crafted new devices to assist fund the transition.

Amongst ESG debt choices, inexperienced bonds’ dominance is but to be challenged by a more recent sort of instrument, sustainability-linked bonds, which carry penalties for debtors in the event that they fail to fulfill sure targets.

Corporations can safe cheaper financing by inexperienced bonds, Barclays mentioned, and their relative enchantment has elevated even additional as traders doubted the important thing efficiency indicators used within the much less mature sustainability-linked securities.

“Volumes might have been stunted by considerations from traders round greenwashing available in the market (resulting from considerations round unambitious targets, immaterial KPIs and small penalties),” Edwards mentioned.

Issuance of SLBs declined sharply to $60 billion from $95 billion in 2021.

Reporting by Isla Binnie; extra reporting by Davide Barbuscia; Modifying by David Gregorio

Our Requirements: The Thomson Reuters Belief Rules.

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