Environmental and social targets are the next big “boom” in the debt capital markets, says JPMorgan Chase & Co.
In an interview with Bloomberg, Marilyn Ceci, global head of ESG debt capital markets at JPMorgan, says 2021 is going to be “the year of sustainability-linked bonds.”
According to Ceci, ESG bond sales across the globe could be between $120 billion and $150 billion by the end of the year. By comparison, 2020 saw less than $10 billion in issuances. 2021 is already at nearly half of last year’s total.
“It’s going to be the fastest-growing sustainable instrument that we have if we extrapolate what we’ve seen already,” she said.
The market is expected to get support from the Biden administration’s recent climate commitments. His climate targets should only help elevate ESG bond sales. In his first week in office, President Biden re-entered the Paris Climate Accord and pledged net carbon neutrality by 2050 — a plan more aggressive than China’s 2060 target. Biden’s $2 trillion climate change plan invests heavily in green energy and infrastructure.
ESG investing — Environmental, Social, Governance — is mirroring the trends in other sustainable industries like clean cars, tech, and food. Issuers looking at Paris Agreement targets are in higher demand. JPMorgan says sustainability-linked bonds (SLBs) offer borrowers flexibility. Borrowers only need to hit social or environmental targets. For borrowers who fail to hit targets, there may be penalty points.
“That can be a good option for companies with no particular project to finance but a general desire to make their businesses more sustainable,” Bloomberg notes.
Green bonds are the most established ESG element. These are most often used for financing projects such as renewable energy or electric vehicle charging stations.
SLBs are becoming more transparent, too. Last June, the International Capital Market Association released guidelines to this effect. There are similar guidelines for green and social bonds.
Last week, screen actor Robert Downey Jr. announced the launch of an ESG venture fund, FootPrint Coalition Ventures. It’s working to bring green tech and innovation mainstream.