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Green bonds push corporate debt in sustainability out of recession in 2023

Barclays said global sales of corporate bonds with environmental, social and governance objectives will rebound this year to $460 billion, after the asset class suffered its first setback in 2022 as interest rates rose. Heavier on credit markets.

ESG bond volumes have swelled over the past few years but fell by 22% in 2022, amid a broader slowdown in corporate bond issuances, as companies faced dramatically higher borrowing costs, due to aggressive monetary tightening measures by global central banks battling inflation.

And Barclays announced in a credit research note that corporate ESG bond issuance fell to $362 billion last year, from $461 billion a year earlier, and it expects ESG bond sales to grow by 30% this year, and to rebound to roughly the same levels in 2021. Mostly driven by green bonds.

“We expect green bond issuance to continue to dominate the market thanks to strong demand and a long list of green projects that need financing as companies put decarbonization plans into action,” Charlotte Edwards, head of ESG FICC research at Barclays, said in the note.

Shifting the planet’s energy system away from greenhouse-gas-emitting fuels will cost $2 trillion annually by 2030, according to estimates from the International Energy Agency.

Companies and banks have created new tools to help finance the transition. Among ESG debt options, the dominance of green bonds has yet to be challenged by a new type of instrument, sustainability-linked bonds, which impose penalties on borrowers if they fail to meet certain targets.

Cheaper financing
The Barclays document stated that companies could secure cheaper financing through green bonds, and their relative attractiveness increased further as investors questioned key performance indicators used in less mature sustainability-linked securities.

“Trading volumes may have been hampered by investor concerns about environmental laundering in the market (due to concerns about unambitious targets, immaterial KPIs and micro-penalties),” Edwards said.

It is reported that the issuance of securities lending and borrowing witnessed a sharp decline to $60 billion from $95 billion in 2021.



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