The Corporate Climate Pledges Are as High as an Elephant’s Eye
We’re halfway through 2021, and it’s already proving to be a bumper year for sustainability. Almost every major activity in sustainability is above last year’s trend lines: Corporations are making more pledges to procure clean energy. Financial markets are issuing more sustainable debt. And investors are putting more money into environmental, social, and governance-themed exchange-traded funds.
In a few categories, however, sustainability commitments aren’t just ahead of last year’s trend, they’re also ahead of the full 12 months of 2020.
Corporate Science-Based Targets commitments, i.e. those made in conjunction with the initiative of the same name to line up with Paris Agreement targets, have already set an annual record. More than 150 commitments in June alone means that 590 companies have now aligned their emissions trajectory with the global agreement.
The global green bond market is another outperformer. Financial institutions, corporations, and governments have issued more than $100 billion of green bonds pear year since 2017 and more than $200 billion in 2019, with 2020’s total clocking in at $243 billion.
So far this year, the total is $248 billion, with biggest players being serial issuers in the utility and banking sectors such as NextEra Energy Inc, Engie SA, and BNP Paribas SA. At this pace, we could see a half a trillion dollars in green bond issuance in 2020.
Sustainability bonds, too, are having a breakout year, passing 2020’s total issuance in May and more than $90 billion so far in 2021. The most popular currency for sustainability bonds? The greenback, a.k.a. the U.S. dollar. Salesforce.com Inc., Starwood Property Trust Inc., and HP Inc. are leading issuers.
One aspect of sustainable finance, however, is significantly underperforming of late. Net inflows to ESG ETFs—that is, the amount of money going into the funds, minus the amount of money going out—started declining in January, and only ticked back up last month.
Year-to-date, overall ESG ETF flows are more than double 2020’s pace, and yet they’re still below the net total for last year. Those flows accelerated significantly starting in the third quarter of last year; this year, they’ve been declining from the get-go.
The June uptick may indicate that ESG funds are returning to favor. One fund to watch: Engine No. 1’s new Transform 500 ETF. Fresh off securing three board seats at Exxon Mobil Corp, the activist hedge fund will focus on 500 of the largest U.S.-traded companies, specifically targeting ESG-driven changes to their strategies. Rather than exclude funds based on poor ESG metrics, it hopes to use its voting rights to drive change. No surprise, perhaps, that its ticker is VOTE.
Nathaniel Bullard is BloombergNEF's Chief Content Officer.
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