New York and Washington, D.C., October 17, 2019 – Total issuance of sustainable debt has surpassed $1 trillion in a landmark moment for the market, according to new data compiled by research company BloombergNEF (BNEF). This milestone was announced today at the Sustainable Bonds Forum hosted by the International Finance Corporation (IFC) in Washington, D.C.
The sustainable debt market includes green, social and sustainability bonds and loans that finance projects with positive environmental and social benefits, as well as debt securities that react to the sustainability performance of the borrower. Surging capital flow into the market has been driven by growing investor demand for the securities. Some markets like Japan, Hong Kong and Singapore also offer financial benefits for issuers structuring sustainable debt, in an effort to boost the supply of investment opportunities.
“Reaching the trillion dollar milestone is a key moment for the sustainable debt market – if this market wasn’t already on the radar of major global investors, it will be now”, said Angus McCrone, chief editor at BNEF. “This is just the beginning – while it took twelve years to find the first trillion dollars of sustainable debt capital, it will take much less time to reach the second trillion.”
Green bonds, which debuted the sustainable debt market in 2007, remain the most popular financing option by dollar volume. Green bond issuance totals $788 billion to date, representing 77% of the sustainable debt market. Other innovations in the sustainable debt market include sustainability bonds (7%), sustainability-linked loans (10%) and sustainability-linked bonds (<1%).
Sustainability-linked debts are a new innovation that offer explicit price incentives to borrowers or investors. Italian utility giant Enel SpA was the first company to issue a sustainability-linked bond, with a $1.5 billion security sold in September 2019. Enel has committed to boost the interest rate the bond pays if it fails to meet its own renewable energy generation targets.
“The sustainability-linked model is a crucial development for the sustainable debt market,” said Mallory Rutigliano, a green and sustainable finance analyst at BNEF. “The bonds and loans are considered sustainable not because of the use of proceeds, but because of how the borrower commits to making sustainability improvements. With the transition to a lower carbon economy and inclusive growth on the agenda of many major companies, the concept is gaining traction.”