Explainer | What is driving an almost 200 per cent growth in sustainability-linked debt financing

Globally, green and sustainability bond and loan issuances totalled US$809.5 billion in this year’s first half, nearly tripling year on year

In China, Hong Kong and Taiwan, about 41 sustainable bond transactions worth US$19 billion were recorded in first six months of 2021, compared to 23 deals worth US$7.6 billion in all of last year

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An electronic board shows the share index at the Hong Kong stock exchange. Deals in the city have been boosted by a monetary authority scheme that subsidises bond issuance expenses for first-time green and sustainable bond issuers. Photo: AP

Published: 2:00pm, 1 Aug 2021Updated: 5:27pm, 2 Aug 2021

Sustainable debt financing has flourished globally in the past year. Growth in green bonds, which finance projects with environmental benefits, and sustainable loans that also support social projects, has been particularly strong.

Such flows of funds from lenders and bond investors to borrowers, which are guided not only by conventional financial performance metrics such as profitability and capacity to repay, but also non-financial considerations, have been gathering momentum.

Factors such as a company’s resilience against the impact of climate change, the social impact of its activities, board diversity and governance effectiveness are important indicators of the risks and opportunities it faces. Creditors are more aware of these factors than ever, and need to take them into account systematically when assessing borrowers’ creditworthiness.

Globally, green and sustainability bond and loan issuances totalled US$809.5 billion in this year’s first half, nearly tripling from the US$286.7 billion in issuances in the same period last year, according to Refinitiv. This number also exceeded the total of US$743 billion recorded in the whole of 2020.

Here’s what debt creditors and bond investors need to know about sustainable financing.

How fast has green and sustainability debt been growing?

Globally, sustainability loans almost quintupled year on year to US$293 billion in the first half of this year, while green bonds nearly tripled and sustainable bonds grew 160 per cent.

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