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Tuesday, July 27, 2021

Market for Bonds Meant to Keep World Cool Heats Up

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Sales of bonds with borrowing costs linked to climate change have accelerated dramatically this year, led by companies with high carbon emissions, such as Canadian pipeline operator Enbridge Inc., Italian energy giant Enel SpA and Spanish energy firm Repsol SA .

More than $31 billion worth of sustainability-linked bonds have been sold in the past three months, according to Dealogic. That is more than the $23 billion sold between the first deal being done in 2019 and the start of the second quarter this year.

Enel, Repsol and Enbridge alone raised almost $7 billion from such bonds last month, as demand heated up from investors determined to try to help the global climate stay cool and gain good returns.

The market for sustainability-linked bonds is still relatively small compared with the green bond market, where borrowers raise funds for specific “green” projects. In contrast, sustainability-linked bonds can raise funds for any purpose, but borrowers risk higher interest costs if they fail to meet targets for goals such as cutting emissions or hiring more female executives.

When borrowing costs are linked to climate-related goals, these bonds are sometimes called “transition bonds.” Investors are keen on such bonds from the biggest polluters when those companies set ambitious and credible goals to cut their carbon emissions.

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