If you’re an investment grade issuer and want to lower your cost of capital the next time you go to market, a Politico article says you’d be well advised to use the money to fund ESG related projects, as Alphabet and Visa have recently done. This excerpt says there’s simply not enough ESG product to meet market demand:
This is a big year for investment-grade corporate debt — fueled in part by actions the Federal Reserve took in March allowing large companies to borrow more cheaply from private lenders. But the vast majority is not aligned with environmental, social and governance principles, said Jonny Fine, head of Investment Grade Syndicate at Goldman Sachs who played an integral role in the Alphabet deal. “The proportion of ESG this year is no different. It’s a very small part of our market overall,” Fine said. “The only difference we’re seeing in 2020, because we’ve had health care crises and racial divisions across the U.S., is the S in ESG has become much more important.”
So far this year, companies have issued nearly $1.5 trillion in new investment-grade debt. Less than 2 percent of that adheres to ESG standards. This reflects a problem in financial markets, Fine added. Right now, there aren’t enough ESG assets to satisfy demand from investors, who clamored for the bonds issued by Alphabet and Visa. Companies need to develop sustainability frameworks so they don’t miss out on the wave of cheap financing. “There is a very clear cost of capital disadvantage for a company that doesn’t have strong ESG principles,” Fine said.
Granted, Alphabet and Visa are both premium credits, but the pricing on their ESG-related debt was pretty phenomenal. Alphabet issued $5.75 billion at 0.8%, while Visa raised $500 million at 0.75%.
-John Jenkins, TheCorporateCounsel.net August 20, 2020