Ethical debt deals are set to become the majority in Europe’s market for corporate loans for the first time next year.
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Bankers expect at least half of the loan deals for investment-grade firms in Europe, the Middle East and Africa to be tied to environmental, social and governance targets in 2023, based on interviews conducted by Bloomberg. That’s a jump from an already record 36% share this year, as pressure grows for firms to show investors their sustainability credentials.
“If we project this for 2023 and the dynamic remains the same, we may reach 50% in the course of next year,” said Agnes Gourc, head of sustainable capital markets with BNP Paribas SA, one of the world’s top arrangers of such debt.
Firms are putting greater emphasis on raising ethical debt amid a push from regulators to force banks to pay closer attention to ESG. This can mean discounts on loans if they meet certain targets such as reducing pollution or food waste, though some of these deals have come under scrutiny for being overly soft or for not disclosing specific goals.
Issuance of high-grade sustainability-linked loans in the EMEA region has reached €142 billion ($147 billion) so far this year, closing in on 2021’s record €168 billion volume, according to data compiled by Bloomberg. There’s been growth in the niche German Schuldschein market, a kind of debt similar to loans, where ESG-linked transactions now form about 37% of sales and are also projected to reach 50% next year.
Progress has been slower in the leveraged sustainability-linked loans market, where issuance has slumped to just €17 billion from €42 billion last year.
“We expect it will take a bit longer to get to the same level for the leverage market,” said BNP Paribas’ Gourc.
Read the full article here by Jacqueline Poh, Advisor Perspectives.
