Sustainability-linked bond market to swell up to $150 bln - JPMorgan ESG DCM head



* SLB-linked bond market to grow 20-fold this year -JPM banker

* Expects it to be between $120 bln and $150 bln - JPM's Ceci

* SLBs allow firms to raise money for general corporate purposes

* COVID-19 boosted interest in climate-linked bonds

By Dhara Ranasinghe

LONDON, March 22 (Reuters) - The market for bonds that are linked to companies meeting certain environmental goals could grow 20-fold this year to between $120 billion and $150 billion, a senior JP Morgan banker said, as businesses look to tap into booming demand.

COVID-19 has boosted interest in companies that perform well on environmental, social and governance (ESG) targets as it led to an assessment of how economies should look in future, lifting the volume of green and social bonds sold to raise new funds.

Most ESG-linked bonds issued in recent years require the issuer to spend proceeds on specific projects.

But sustainability-linked bonds (SLB) allow firms to raise money for general corporate purposes while promising investors that if they do not meet the sustainability targets set -- such as cutting carbon emissions -- they will pay investors extra.

Marilyn Ceci, global head of ESG developed capital markets (DCM) at JP Morgan and an influential voice in the fast-growing market, said SLBs are an effective way for companies to show a commitment to an ESG goal without raising funds for particular projects.

"I'm calling for the SLB market to grow to around $120 to $150 billion since market inception, and I expect we'll get that this year," said Ceci, noting that SLB issuance since inception was about $20 billion. Year-to-date volumes stand around $6.9 billion.

"I get calls from investors more and more saying that they want more SLBs, they like the holistic approach, and they like the skin in the game."

SLBs are relatively new and investors are less familiar with them than with green bonds. The process of companies paying penalties for failing to meet sustainability targets they have set themselves is also largely untested.

CLEARER RULES

Global green bond issuance could reach $400-$450 billion this year from almost $270 billion last year, the Climate Bonds Initiative estimates.

Ceci, who co-authored the Green Bond Principles on voluntary process guidelines of best practice in the sector, expects the overall market for green, social and sustainable bonds to grow 49% this year to around $690 billion.

Italy's Enel issued the first sustainability-linked bond in 2019 worth $1.5 billion. In September, Brazilian pulp and paper producer Suzano's sold a $750 million carbon emissions-linked bond.

Drugmaker Novartis NOVN.S , luxury brand Chanel, supermarket operator Tesco TSCO.L and retailer H&M HMb.ST have also issued SLBs recently.

The growth in sustainable bonds is also being fuelled by clearer rules around what they are. The European Central Bank said in September it would accept as collateral green bonds with payouts linked to sustainability targets from 2021.

"One unknown is whether a sovereign will embrace a sustainability-linked bond, that will be very interesting to see," said Ceci.

Neha Coulon, global head of ESG solutions at JPMorgan, noted that demand for sustainability products was reflected in leveraged loans.

She said that the first two months of 2021 had seen eight sustainability linked loans in the European leveraged loan market versus about seven throughout 2019 and 2020.

Speaking to Reuters before this week's JPMorgan global ESG conference, Ceci and Coulon said COVID-19 had proved a stress test for ESG.

"This was the first stress test for ESG investing and one of the criticisms historically had been that ESG investing hadn't been through a full business cycle for us to understand if it was nice to have, or it was really meaningfully decreasing risk and adding alpha," Coulon said.

Increased engagement in the United States due to more mainstream investors incorporating ESG goals into broader investment policies was also helping growth, Ceci said.



Asset flows into ESG funds in total Link



Reporting by Dhara Ranasinghe; Editing by Emelia
Sithole-Matarise

Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

We are using cookies to give you the best experience on our website. Read more or change your cookie settings.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.