by Morgan Stanley

Protect businesses by having speed

Big Thinkers: The CEO of Ikea and the UN Deputy-Secretary General answer questions on how the world will meet climate goals and how we ensure sustaimability initiatives deliver

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The decade of climate bonds

Climate bond growth signals shift in ESG financial mindset

Sustainable bonds are on track to exceed $1tn in 2021, according to a recent study from S&P Global. Sustainable bonds, a form of debt issuance to fund sustainability-focused goals, have grown to include the green bond, social bond, and sustainability-linked bond markets, expanding the market of financeable projects.

Since their inception in 2008, green bonds have incited financiers as a way to “do good” in the fight against climate change. Over a decade ago, the first green bond was introduced by the World Bank after a group of Swedish pension funds sought international financing support to help invest in climate-related projects. Quickly thereafter the Centre for International Climate and Environmental Research, CICERO, began serving as a scientific verifier for green bonds.

Sustainable bonds issuance rose to $569bn in early 2021, exceeding the total issuance in 2020, according to Sandinaviska Enskilda Banken AB, the first bank to work with the World Bank on a green bond.

Sustainable bonds have grown beyond solely green bonds, as originally organized by the World Bank. In 2020, the social bond market exploded in response to the outbreak of Covid-19, growing more than eight times that of 2019 levels, as reported by the International Finance Corporation.

“The good news is social bonds can help us get there,” John Gandolfo, Vice President and Treasurer of the IFC remarked as a funding mechanism to reach the UN’s Sustainable Development Goals, nodding to the success of $142bn in global social bond issued in 2020.

Connecting financers to the climate crisis have increased dramatically since the inaugural bond, but ‘greenwashing’ concerns have begun to trouble investors.

Tariq Fancy, the former CIO of Blackrock, has called “ESG”, or environmental, social and governance-focused finance, a “deadly distraction.” Robert Armstrong, the Financial Times’ US Financial Commentator remarked that green bonds “are a capital arbitrage opportunity.”, or a method of taking advantage of market mispricings.

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