ESG bond issuance headed for a slump in US, Goldman says
Companies based in the U.S. are on track to halve the amount of ESG-labeled debt they issue this year, marking a clear departure from the trend on the other side of the Atlantic, according to an analysis by Goldman Sachs Group Inc.
The U.S. slump reflects the different regulatory set-ups in the two regions, said Goldman analysts including Michael Puempel and Sienna Mori. In Europe, rules have driven the supply of debt that incorporates environmental, social and governance goals. In the U.S., meanwhile, utility and energy sectors, as well as the financial firms backing them, have retreated from the ESG bond market.
The development follows more than a year of political attacks against ESG in the U.S., with high-profile Republicans such asFlorida Gov. Ron DeSantis, a presidential hopeful, seeking to vilify the investment strategy as “woke” and anti-American. Combined with the fallout from an energy crisis that’s driven up fuel costs and led Big Oil to walk back green transition plans, U.S. issuers are cooling to green bonds.
Meanwhile bonds of all stripes — whether they’ve got an ESG label or not — are feeling the effects of continually rising interest rates. This week, the 30-year Treasury yield rose above 5% for the first time since 2007, sending reverberations across equity and debt markets.
This year is likely to see just $40 billion of ESG corporate investment-grade issuance in the U.S. dollar market, according to the Goldman analysts. That’s half the amount issued by U.S. companies last year, and just 40% of the level reached in 2021, they said. The slump means that ESG-related issuance only accounts for 3% of total dollar-denominated supply in the investment-grade market, Goldman estimates.
That’s “sharply down”
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