ESG bond funds now manage 600% more assets than three years ago



The debt world has quickly embraced finance that aims to improve environmental, social and governance outcomes, according to a new report from Goldman Sachs.

Assets under management of ESG-focused fixed income funds, short for a host of efforts to promote more responsible forms of financing, have swelled by more than 600% to $ 400 billion since 2018, according to The report.

Here’s a chart to show the sharp increase in ESG-related assets:

The rise of ESG debt funds

EPFR, Goldman Sachs

“At the start of 2020, we argued that demand for ESG assets would continue to create its own supply in fixed income markets,” wrote a Goldman credit research team led by Lotfi Karoui, in a note. weekly, adding that “a year and a half later”, the pace surprised on the rise.

In a recent example, the owner of the Manhattan office, SL Green Realty Corp. SLG,
in June closed bond financing of $ 3 billion to A Vanderbilt Avenue, a new skyscraper overlooking Grand Central Terminal in New York that he developed with the National Pension Service of Korea and Hines Interests Limited Partnership.

The building is one of eight buildings that SL Green has linked to its engage with tenants to reduce greenhouse gas emissions 30% over 10 years. SL Green did not immediately comment.

Green bonds and other debt with a stated ESG focus often reduce borrowing costs for companies, in part because investors increasingly seek assets that match their ESG mandates.

Historically low 10-year Treasury yields TMUBMUSD10Y,
Spotted near 1.31% on Friday, it also means debt can be a fairly cheap option for businesses and homeowners looking to borrow money. Inventories were lower on Friday, but still close to record territory as the economic recovery from the pandemic progresses, with the Dow DJIA,
+ 0.64%,
S&P 500 SPX,
and the Nasdaq COMP composite index,
+ 1.10%
less than 0.7% in afternoon trading.

But lax enforcement mechanisms have also emerged as a key criticism of the industry, especially when companies fail to report on how dedicated ESG funds have been used and whether their stated goals have been met. or not.

Several bond investors have told MarketWatch that the most powerful tools available to them in terms of enforcement in the event of a problem would be to sell the debt after issues appear or by avoiding future debt offers from an issuer.

The boom in debt issuance led the United States Securities and Exchange Commission to set up a climate and ESG task force in March in his execution division to the police for potential violations in the area.

The focus on ESG comes as the toll of the past 40 years of major climate and weather disasters in the United States reaches $ 2 trillion, and parts of the West Coast grapple with record heat, extreme forest fires and drought.

The European Union also published this week its “Fit for 55” program aimed at reducing carbon emissions by 55% by 2030. A Reuters report said the plan “will put the internal combustion engine in history”, while BofA researchers in a new report call it “the most ambitious multilateral climate strategy ever attempted.”



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