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The global issuance of sustainable bonds – including green, social and sustainability-linked bonds – reached a record height of over $1 trillion in 2021, and represented 10% of the year’s overall debt capital market, data by Refinitiv shows.
Last year also saw the rise in popularity of social bonds, which are designed for projects that achieve positive social outcomes, such as basic infrastructure, affordable housing and access to essential services.
“Social bonds boomed in 2020 and 2021 as nations and corporate issuers sought to respond to the Covid-19 pandemic with focus on issues such as access to healthcare and tackling unemployment. During the first quarter of 2021, global social bonds saw their highest quarter yet, with the total amounting to $91.96 billion, and the European Union's SURE bond programme contributing to that growth,” Elaine Tan, senior analyst, Refinitiv Deals Intelligence told FinanceAsia.
The findings are published in Refinitiv’s latest Sustainable Finance Review 2021.
The top three bookrunners for sustainable bonds in 2021 were JP Morgan (6% market share), BNP Paribas (5.9%) and BofA Securities (5.2%). The top 10 sustainable finance bond underwriters together accounted for 45.6% of the overall market 2021, up from 41.6% a year ago.
The growth in sustainable bond issuance is expected to continue in 2022 amidst the backdrop of increased private and public sector commitments to reducing CO2 emissions across the globe, and an acceleration of policy measures, Tan added. Refinitiv expects that companies with sustainable business models will also continue to appear and will need to utilise the capital markets.
Challenges for sustainable finance
Despite the upward trending figures, persistent concerns around greenwashing pose a threat to the future development of green finance.
One commonly cited challenge is the absence of universally-accepted standards for green and sustainably bonds. This was acknowledged and addressed at the latest COP26 conference, where a working group published the ‘EU-China Common Ground Taxonomy’, identifying commonalities and differences between the EU and China’s taxonomies. A group of pan-ASEAN bodies also unveiled the ASEAN Taxonomy for Sustainable Finance at the same event.
The cost and complexity of an ESG bond issuance – including second party verification and post-issuance reporting – can also be prohibitive for smaller companies, explained Linklaters counsel, Karen Cheng. “Even for other companies, it may mean that an ESG bond issuance is more of a “one-off” transaction rather than a regular core part of its mainstream funding strategy,” she told FA.
Moreover, investors have been seen to “hoard” green bonds as supply remains below demand, leading to a perception of low liquidity in the green bond market, Cheng added.
Challenges also remain for the increased use of more niche types of sustainable bonds, including social bonds, because their impacts are harder to measure than environmental improvements, explains Linklaters’ latest ESG Legal Outlook report.
On whether the nature of greenwashing differs between Asia and the rest of the world, Denise Fung, dispute resolution partner at Linklaters said that while broad themes are the same, the response by financial regulators to claims of greenwashing have differed.
“Whilst financial regulators globally have stated that greenwashing is high on their agenda for 2022, the level of activity in ESG-related claims from non-governmental organisations and in civil litigation has been noticeably higher outside Asia, most notably in Europe and Australia,” she said.
Landmark court rulings relating to greenwashing in 2021 include the Australian federal court’s decision to grant a Commonwealth Bank of Australia shareholder access to internal documentation on its involvement in oil and gas projects, and the Hague District Court’s order to Royal Dutch Shell to cut its CO2 emissions by 45% by 2030.
Sustainable issuances and M&A
The Refinitiv Sustainable Finance Review 2021 also looked at fundraising by “sustainable companies” and M&A deals involving such companies.
In 2021, equity issuances by sustainable companies totalled $47.7 billion, an increase of 43% vis-à-vis 2020. This was bolstered by US electric vehicle maker, Rivian Automotive’s $13.7 billion Nasdaq initial public offering (IPO) in November, the year’s biggest IPO and the largest sustainable equity capital markets offering on record.
According to Refinitiv, M&A activity involving sustainable companies reached a record $196.5 billion in 2021, over three times the value in 2020. China led the way in number of deals, accounting for 26% of activity.
Leading banks for such M&A deals in 2021 were Citi (34.3% market share), Goldman Sachs (24.5%) and Morgan Stanley (23.4%).
