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Goldman Sachs Predicts Significant Decline for ESG Bonds in the US

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US Companies Halve ESG Debt Issuance, Diverging from Europe

US companies are on track to issue only half the amount of ESG-labeled debt this year compared to the previous year, according to an analysis by Goldman Sachs Group Inc. This divergence from Europe can be attributed to the different regulatory environments in the two regions. Europe has created a supportive infrastructure for debt issuance that incorporates environmental, social, and governance goals. In contrast, the US has experienced political attacks against ESG, which, combined with the energy crisis and Big Oil's hesitation in green transition plans, has made issuing green bonds a challenging business. The lack of supply from the utility and energy sectors, as well as the financial firms backing them, has contributed to the decline in US ESG issuance. However, globally, ESG fixed income funds continue to attract client flows, indicating the growing traction of this investment style. Despite the political headwinds, more ESG funds are being launched than liquidated, with the US also seeing a net increase in ESG fund creation.

Implications for New Businesses Amid ESG Debt Issuance Decline in the US

The recent trend of US companies halving their ESG-labeled debt issuance, diverging from their European counterparts, can significantly impact new businesses. This trend, driven by the different regulatory environments and political climates in the US and Europe, has made issuing green bonds a challenging endeavor in the US.

Challenges for Green Startups

New businesses, particularly startups focusing on green initiatives, may face funding challenges due to the decline in ESG debt issuance. The hesitance of Big Oil and utility sectors in backing green bonds, coupled with the energy crisis, has made the financial landscape more difficult for these startups.

Opportunities in ESG Fund Creation

Despite the decline in ESG debt issuance, the increase in ESG fund creation in the US presents an opportunity for new businesses. The continued global interest in ESG fixed income funds signifies a growing market for businesses that align with environmental, social, and governance goals.
Adapting to the Changing Landscape
The current situation calls for new businesses to be adaptable and innovative in their approach to securing funding. They must navigate the political headwinds and regulatory challenges while capitalizing on the growing interest in ESG-aligned investments. This could involve exploring alternative funding avenues or strengthening their ESG credentials to attract investment.
Story First Published at: https://financialpost.com/pmn/business-pmn/goldman-sachs-says-esg-bonds-are-headed-for-major-slump-in-us
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