(Credit: Pixabay)Sustainable debt surpassed $1.6 trillion in 2021, more than doubling what it was at the end of 2020, according to data compiled by BloombergNEF.
Sustainability-linked loans and bonds saw the fastest growth last year, with more than $530 billion issued, according to the 1H 2022 Sustainable Finance Market Outlook. These are tools for which repayment is tied to the achievement of institutional environmental, social and governance targets and were worth only a quarter of their 2021 total in 2020.
In addition to sustainability-linked instruments, sustainable debt includes funds borrowed for specific ESG projects, such as renewable energy projects. BNEF says project-based borrowing was strong in 2021, with green bonds seeing more than $620 billion in issuance.
Overall green bonds make up 45% of the $4 trillion of total sustainable debt issued through 2021, the largest contributor to the sustainable debt market. Sustainable debt was issued at nearly $763 billion in 2020.
Social and sustainability bonds, which finance community-based projects in full or combined with green objectives, were nearly $400 billion in combined issuance in 2021. These bonds often target vulnerable populations, BNEF says, and have played a key role in borrowing during the COVID-19 pandemic.
Sustainable debt has become popular because it allows more flexibility because it doesn’t need to be earmarked for specific purposes, according to BNEF, and allows companies to integrate their corporate sustainability goals into a variety of financing.
In 2021 Walmart secured a $2 billion green bond, which was reported to be the largest by a US corporation on record. Amazon issued a $1 billion sustainability bond and Kellogg priced a $363 million bond as the market quickly grew.
The increase in sustainable debt potentially will challenge regulators, BNEF says, as investors, lenders and other financial services start using more ESG products with greater ease, governing bodies will be tasked with what should be included under those labels. That includes the types of disclosure required and the ways to track and audit sustainability-related statements.
A lack of overall oversight is and standardization is an area that could add risk to the growth of the debt, according to some, and its quick growth could lead to more scrutinizing of issuing sustainable debt in the future. Still, it is becoming an increasingly important tool in making emissions improvements, BNEF says.
“Though sustainable varieties still make up a relatively small portion of the total debt market, the $1.6 trillion in issuance in 2021 is similar to the 2020 GDP of Canada,” says Maia Godemer, Sustainable finance associate at BNEF. “This is not insignificant, especially as more countries begin to legislate mandates and rules related to the scaling up and standardization of sustainable finance. This shows how much financing could be unlocked to expedite our transition to a low-carbon world.”
BNEF’s sustainable debt includes green bonds, green loans, social bonds and sustainability bonds that follow guidelines set by the International Capital Market Association and the Loan Market Association.
