U.S. ESG bond market facing slow death as sales hit five-year low

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The bonds were supposed to change the world. US companies and banks are increasingly uninterested in selling them.

Trees in an area that appears to have been logged near Round Lake in Pigeon River Country state forest in Vanderbilt, Michigan, U.S., on Wednesday, Apr. 20, 2022. Michigans Department of Natural Resources signed a deal in late 2020 with Blue Source to begin developing a carbon project on the wildlands. Photographer: Erin Kirkland/Bloomberg -- The bonds were supposed to change the world. U.S. companies and banks are increasingly uninterested in selling them.

This marks an about-face from a few years ago when demand for sustainable debt funds surged as investors clamored for assets aimed at making the world better, in the aftermath of the COVID-19 pandemic and social upheaval following the killing of George Floyd. Companies issued a record $94.5 billion in ESG bonds in 2021 on the back of that demand.

CFOs have also had to sometimes halt funding plans as recession concerns and central bank rate hikes roiled global debt markets. When issuance windows do open, treasurers have prioritized executing plain vanilla deals over more time-consuming green bonds. “Our sustainable bond offerings generally track with our overall debt issuance, which has steadily declined over time,” a BofA representative said in a statement.“While the market may not see the issuance of labeled securities as frequently in the US, US companies aren’t necessarily operating differently,” said Emily Kreps, Deutsche Bank AG’s global head of ESG and sustainable finance, and head of ESG Americas.

Even so, companies like Irish building materials business CRH Plc, which are considering issuing ESG debt, have so far hesitated to take the plunge.

 

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