Feature ESG – Bonds
GREEN MONEY
Demand for sustainable debt is growing. Mark Dunne looks at how ESG is influencing the bond markets.
Rishi Sunak is turning green. The chancellor intends to issue a green sovereign bond later this year to fund projects that tackle climate change, improve the UK’s infrastructure and create “green jobs”. It will also, he says, meet growing investor demand for sustainable debt.
Indeed, some would argue that ESG has become a mainstream strategy for picking equities, but it also appears to be establish- ing itself as a method of assessing risk in the bond markets. “ESG is everywhere, including fixed income,” says Matthieu Guignard, global head of product development and capital markets at Amundi ETF. “It started with equities, but now almost all the market is switching to ESG, including fixed income.”
The global sustainable debt market is worth close to $3trn (£2.1trn), the Institute of International Finance says. The $315bn (£226.6bn) raised in the first quarter is almost half of the total amount collected during the whole of 2020, showing
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how fast the market is expanding. “Sustainable debt issuance is growing quickly and we believe is becoming an attractive asset class in its own right,” says Eric Nietsch, head of ESG Asia at Manulife Investment Management.
In 2020, the amount of sustainable debt issued by companies in the Asia Pacific region has more than doubled over the past five years. “We believe this is driven by increasing awareness among companies of their ESG risks, recent and anticipated regulatory changes, and a recognition that it can be helpful for issuers to diversify their funding sources,” Nietsch adds. ESG’s growth in the bond market is not a surprise for one man. “Equity is a small fraction of the financial markets. The reality is that most assets are in the fixed income space,” says Felipe Gordillo, a senior ESG analyst at BNP Paribas Asset Management. “Our clients are moving into ESG integration and they want to see solutions, and not just in equities.” ESG is establishing itself as a crucial part of investment deci-
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