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Goldman sees pandemic spurring growth in ESG bond issuance

Issuance of bonds for social and green projects will accelerate as investors focus more on sustainability and the environment in the age of COVID-19, according to Goldman Sachs Group Inc.


The U.S. bank is having “active dialogue” with potential issuers of social, green and pandemic-related debt from across sectors, according to Kevin Smith, vice president in Goldman’s sustainable finance group. Companies from the utilities, technology, health care, real estate and industrial sectors may do sustainable issuance, he said.


“This will be part of toolkits for corporate treasurers and we’ll see more issuance going forward,” said New York-based Smith in a telephone interview Tuesday. Goldman was a lead bookrunner on this month’s record sustainable bond sale from Alphabet Inc.


Pricing Benefits

U.S. companies see an opportunity to align fundraising with broad sustainability strategies by issuing debt for environmental, social and governance projects. At the same time, a broadening pool of investors is looking to buy ESG-linked bonds, potentially leading to better pricing for a borrower, said Smith.


“At the end of last year, and continuing through the cycle, we have seen pretty consistent benefits of five basis points to 10 basis points,” said Smith, referring to issuance of green and social bonds. Besides aligning capital raising with support for a broad sustainability strategy, issuers in this market also gained investor diversification, Smith said.


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Borrowers globally have raised a record US$76.97 billion in social and sustainability bonds this year, exceeding the US$55.4 billion raised in the whole of last year, according to data compiled by Bloomberg. Moody’s Investors Service predicts global issuance of social and sustainability bonds will hit US$150 this year. Goldman’s Smith said he expects about US$100 billion to US$150 billion in total.


“That’s probably a good handle given where the market could be and based on our issuer dialogue,” he said.


Sovereigns, supra-nationals and agencies — which typically blaze a trail for companies by doing labeled ESG issuance — will issue more social debt in the next couple of years, according to Maud Le Moine, head of SSA debt capital markets at Goldman. “Most of the Covid-related bonds are social bonds in some way or another and we expect that to be a trend going forward,” said London-based Le Moine.


The burden of meeting reporting requirements to sell certified green and social debt can be onerous for some issuers who don’t want to take on the extra work it entails, according to Moody’s. However, according to Smith, issuers are moving away from focusing on the cost as “transactional” to setting up programs for multiple deals.


Goldman has helped arrange Covid-related deals globally worth about US$33.5 billion so far this year, including sovereign, development bank and agency issuance.


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