over 3 years ago • 2 mins
The level of sustainability-focused borrowing among companies and institutions has surged in 2020 so far – and with investors scrabbling for returns elsewhere, buying into such bonds could be an attractive move ✅
According to a new report from market data provider Refinitiv, a record $275 billion of sustainable funding was raised around the world in the first half of this year. Some $195 billion of that was in the form of sustainable bonds – up around 50% on the same period in 2019 despite (or perhaps because of) the coronacrisis.
Indeed, the second quarter of 2020 alone saw $131 billion worth of sustainable debt sold, with the World Bank leading the pack. The $78 billion of “green bonds” issued over the first six months of the year (where funds are earmarked for environmentally friendly projects) was down slightly on the same period in 2019. But the amount raised by innovative debt with other sustainability-linked objectives more than made up for that – with “social bonds”, for instance, more than doubling their total for the whole of last year.
And while Europe, with 46% of the market, remains the biggest region for sustainable bond issuance, North America and Asia-Pacific are catching up. The Americas, perhaps unsurprisingly, continue to dominate the much smaller category of sustainable stock sales; but bonds may be the dish of choice this year for more reasons than one… 😋
If the second half of 2020 keeps pace with the first, then over half a trillion dollars will have been explicitly committed to funding a more sustainable future. That’s not bad, but not yet enough; back in 2014, the International Energy Agency put the cost of achieving global energy security –and keeping temperature rises below two degrees celsius – at more than $1 trillion per year.
Buyers of such bonds aren’t solely motivated by altruism (or even self-preservation), however. Sustainable bonds pay investors a respectable – sometimes even an excessive – level of interest, while many are also highly graded by ratings agencies. With super-safe government bonds currently offering negative yields and several major stock markets down for the year, alternative forms of debt – including companies’ – are proving attractive.
As detailed in our Corporate Bonds Pack, exchange-traded funds aren’t a perfect way to invest. They do, however, offer Finimizers an easy way to get involved, including in higher-risk “high-yield” areas. As the chart below shows, the likes of the VanEck Vectors Green Bond ETF (green) and the iShares Global Green Bond ETF (yellow) have done well recently…
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