Hot cakes

2 March 2021 By Neil Unmack Follow @unmack1

Investors are piling into bonds sold by companies such as H&M or Tesco which punish issuers for missing environmental targets. Demand has been such that the funding is now dirt-cheap. That could distort the price of the securities, and their intended effect.

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UK finance minister Rishi Sunak will on March 3 announce details of the government’s first green savings bond, in the latest example of the booming market for so-called sustainable debt.

Natixis analysts expect some 330 billion euros of euro-denominated green and sustainability-linked bonds to be issued this year, up from 240 billion euros in 2020.

Green bonds are securities with proceeds earmarked for specific environmentally friendly investments, whereas sustainability-linked securities carry coupons that increase or decrease if the issuer hits pre-set green targets.

Swedish retailer H&M issued its debut sustainability-linked bond on Feb. 18. The 500 million euro notes pay a coupon of 0.25%, or 50 basis points over benchmark swap rates. The bond had originally been marketed with a spread of 90 to 100 basis points.

H&M’s bond will pay a penalty 25 basis point premium from 2026 onwards if the issuer fails to hit pre-set targets. That includes increasing its share of recycled materials to 30% of total materials.

Other companies to issue sustainable debt in recent months include Tesco, Whitbread and Daimler.

Context News

UK finance minister Rishi Sunak will on March 3 announce details of the government’s first green savings bond, in the latest example of the booming market for so-called sustainable debt.

Natixis analysts expect some 330 billion euros of euro-denominated green and sustainability-linked bonds to be issued this year, up from 240 billion euros in 2020.

Other companies to issue sustainable debt in recent months include Tesco, Whitbread and Daimler.

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