Wall Street’s New Battleground
Wall Street’s race is on for dominance in the fast-growing business of turning back climate change.
HSBC Holdings Plc, Citigroup Inc. and Bank of America Corp. have helped power an unprecedented surge in sales of “green” bonds, which are used to finance everything from wind farms to battery technology. They’ve toppled smaller banks like Sweden’s SEB AB, that pioneered what was once on the fringes of international finance but has now garnered mainstream appeal.
As banks grapple with a slowdown in traditional engines of growth such as lending and trading, they’re seeking to capitalize on a boom in green finance. Global green-bond sales have already beaten last year’s record $135 billion well before the end of 2019. Issuance of the securities has more than quadrupled in the past five years, according to data compiled by Bloomberg.
The sales boom is being driven by corporations and governments raising funds to invest in initiatives to help them meet commitments to cut fossil fuel use, embracing principles of The Paris Agreement on climate change.
Goldman Sachs Group Inc. created a “sustainable finance group” earlier this year, charged with finding ways to address demand from investor and corporate clients.
Other lenders have also hired debt capital markets bankers to drive expansion in the market. Nomura Holdings Inc. last year appointed Jarek Olszowka as head of sustainable finance, a newly created role. BNP Paribas SA appointed Chaoni Huang as Asia-Pacific head of sustainable capital markets in July, also a new role.
Explosive demand for green finance has so far had little effect on the cost of borrowing because record low interest rates are squeezing yields across all classes of debt.
“Some issuances have priced better than non-green bonds but by and large these differences are quite small,” said Jon Williams, a partner at PwC specializing in sustainability and climate change.
In a relatively young market it remains difficult to quantify the impact of this type of financing and its contribution to reducing carbon emissions. The sector also faces a challenge from uncertainty over what constitutes a “green” deal. Currently, the label does not depend on a set of legally binding rules. Borrowers often structure the bond offerings according to voluntary guidelines compiled by bodies like the International Capital Market Association.
“I’ve looked at issuances that have been said to be green and I would just say they are less brown,” said Williams. “Certain projects just really haven’t got their green standards robust enough.”
But for now, the tide is still rising. Assets under management at 644 funds focused on environmentally friendly investments tracked by Bloomberg stand at more than $220 billion, compared with around $80 billion at the end of 2014.