T. Rowe Says Green Bonds Are Becoming Less Appealing for US Issuers
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(Bloomberg) -- Issuance of bonds meant to benefit the environment will likely remain muted in the US because companies are no longer getting a material price advantage for selling such debt, according to T. Rowe Price Group Inc.’s Matt Lawton.
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The so-called greenium, which measures the spread of green bonds to non-green bonds from the same issuer, is now ranging between zero to 1 basis point on average for corporations, which isn’t “economically appealing for an issuer,” he said. Sovereigns are getting about 7 basis points on average, he added.
“I’ve spoken with treasurers where they’re absolutely looking at the greenium,” he said. “For some treasurers, in my experience, if they don’t see a material economic incentive on the other side, that’s a headwind.”
Republican-led backlash against do-good investing — particularly with Donald Trump’s election victory — will also potentially keep first-time borrowers at bay, according to Lawton.
Trump has said that he intends to ramp up fossil-fuel production and undo Biden-era green policies like the Inflation Reduction Act, which was widely expected to boost issuance of ESG-linked bonds in the US.
That’s a challenging setup for issuance of the bonds in the US, said Lawton, a portfolio manager for T. Rowe’s global impact credit strategy. “It’s a headwind in terms of new sectors and new issuers coming to market.”
Corporate issuance of ESG-linked bonds this year through Dec. 6 — at $27.2 billion — is already the least since 2019, according to data compiled by Bloomberg.
The IRA was expected to mobilize private capital into sustainable solutions. If it’s softened under Trump, that will probably lead to less capital investment into sustainable initiatives and bond financing in the short term.
Lawton expects less enthusiasm from would-be first-time issuers, who incur costs to develop a bond framework outlining how the proceeds will be used, get external verification and face the additional burden of annually reporting to investors on the use of proceeds.
He spoke with Bloomberg News in a series of interviews ending Dec. 9. Below are highlights of the conversation, condensed and edited for clarity. T. Rowe had $1.61 trillion of assets under management as of end of October.