Bank fees for green debt outstrip fossil-fuel financing

For the first time in six years, global banks made more money from arranging green-bond sales and loans than they did from raising capital for fossil fuel companies, according to new research from Bloomberg New Energy Finance (BNEF).

The analysis shows banks pocketed $3.4 billion from green finance deals in 2021, beating the $3.3 billion earned from organising funds for fossil fuel companies in the same year.

This is a significant increase from 2020 where earnings from green finance totalled just $1.9 billion compared to the $3.7 billion of fuel financing garnered by global banks.

However, the handwriting was on the wall because many countries were pledging to cut emissions to net zero by 2050 or earlier,

There are now 70 countries, accounting for two-thirds of global carbon emissions, with net-zero targets, to be met by 2050. COP26 introduced new targets on biodiversity, coal and methane emissions.

The Bloomberg research showed that French bank BNP Paribas was in the top position on last year’s green finance transaction league table with $159.6 million.  It was followed by JPMorgan with $159.2 million, Credit Agricole, $123.8 million, Citigroup, $121 million and Deutsche Bank $105.9 million.

However, despite its high ranking, JP Morgan was also the biggest earner from fossil fuels, raking in $226 million in 2021.

“No bank stands out more than JPMorgan as a barometer for where the financial services industry is heading when it comes to debt advertised as green or sustainable,” BNEF said in its report.

Fellow New York bank Citi was in second place on the fossil fuel chart at $154.9 million with Royal Bank of Canada in third at $128.3 million. Bank of America and Wells Fargo rounded out the top five at $113.5 million and $93 million, respectively.

In a recent statement, JPMorgan said that it’s committed to “scaling and commercialising critical technologies” needed for the transition to a low-carbon economy.

It also pointed to another promise it made last year: a sustainable development target of $2.5 trillion, including $1 trillion to finance green-related activities.

Moreover, among other pledges, the bank set 2030 as a deadline for carbon-reduction targets in the oil and gas, electric power and auto manufacturing sectors.

Overall, analysts at BloombergNEF expect the growth of sustainable finance to accelerate in 2022. They are predicting that $2.5 trillion of debt advertised as green or ESG-oriented—green bonds, green loans, sustainability bonds, sustainability-linked loans, sustainability-linked bonds and social bonds—will be issued this year, up from closer to $1.5 trillion in 2021.

EU Green bond issuance is likely to be the strongest growing by €50-€75 billion from 2021 figures while social bond issuance is expected to increase by €75 billion from 2021 issuance to €250 billion.

NN Investment Partners (NN IP) is also optimistic and predicts a higher figure in 2022 of roughly €2.9 trillion or around $3.1 trillion.

Bram Bos, Lead Portfolio Manager, Green Bonds, at NN Investment Partners.

“It is clear to us that the momentum of growth in green, social and sustainability GSS bonds will only accelerate further in the years ahead,” said Bram Bos, Lead Portfolio Manager, Green Bonds, at NN Investment Partners in the fund manager’s outlook report.

Bos believes that growth this year will be driven by increased implementation of regulation related to sustainable finance such as the EU’s Sustainable Finance Disclosure Regulation as well as its green bond programme which was launched last October.

He notes that governments are progressively making greater commitments to better environmental practice.

Bos adds, “These initiatives should all ultimately be reflected in regulatory change. Companies should expect that investors will be asking more specifically about their deforestation tracking, fossil fuel phase-out plans and exclusions.”

The NNIP report also expects that Europe to lead the way due to bloc’s pledge to issue up to €250 billion in green bonds to support its pandemic recovery fund.

Social issuance is also predicted to gain traction but the report notes that, “long-term growth is likely to be constrained as without an EU Social Taxonomy, corporate issuers will struggle to define eligible uses of proceeds. This is currently only in draft form. There are also questions over definition are a problem here too”.

Although the focus has been on the developed world, the NNIP report shows that several emerging market countries such as Chile, Egypt and Indonesia have stepped up efforts and issued green, social and sustainable bonds.

“With the market growing rapidly in this space, more diversification and choice is available for investors to reward those efforts,” it adds.

Bos says an evolving sector requires an evolving approach. “New and more detailed regulation, such as SFDR, requires the collection of more data and regular dialogue with issuers to standardise and ensure the quality of impact data that we disclose,” he adds,

©Markets Media Europe 2021

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