Investors scrutinise green claims in $80bn sustainability bond market

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The market for sustainability-linked bonds has boomed to reach $80bn in issuance this year, even as some investors question the ‘green’ credentials of the debt that can be used to finance a broad array of corporate initiatives.

The first deal in this nascent sector only took place in 2019, but in a sign of its escalating appeal among businesses and their debt holders, global issuance has grown almost nine-fold since the end of 2020, according to Environmental Finance.

Sustainability-linked bonds lack the more rigorous criteria placed on green bonds, where debt is raised to finance specific green projects. Issuers do not face tight restrictions on how proceeds are used, but must instead agree to certain environmental, social and governance inspired targets.

Failure to meet those pledges typically results in a step-up in interest payments, raising the issuer’s borrowing costs. But examples so far suggest such penalties are relatively small.

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