series of deep dives, BNP Paribas’ sustainable finance experts are putting the
spotlight on some of the latest developments in sustainable finance today.
With a pressing need to apply innovative thinking to address key environmental and social challenges, and with the corporate and investor communities increasingly looking at the UN SDGs and how profit can be married with purpose, finance is undergoing a quiet revolution.
Here, we take a look at latest developments in three key areas: sustainable capital markets, the social bonds market, and a primer on the ever expanding sustainability-linked loan market.
A second development bolstering the sustainable finance toolkit for corporates has been the sustainability linked loan (SLL). SLLs reward companies that achieve their sustainability targets (such as CO2 footprint or social employment targets) by offering favourable interest rates, aligning their financing and sustainability objectives. The SLL market has also seen significant growth since 2017, growing from $5bn in 2017 to over $40bn in 2018 according to Environmental Finance.
Finally, institutional investors are now turning their attention to social bonds as a way of integrating social impact into their portfolios, as pressure to deliver returns remains, and many are now turning their attention to another growth area in the sustainable capital markets. Unlike green bonds, whose proceeds are earmarked for environmental-related projects, social bonds are channelled to social areas such as education, healthcare, housing and employment. This market is also gaining momentum, as social bonds accounted for 6.5% of all sustainable bond issuance between 2016 and the first half of 2019. This supports the findings of a recent BNP Paribas Survey of over 300 asset managers and owners, which revealed that more than six in 10 respondents align their investments with the UN SDGs.