India’s ESG debt issuance may touch $15 billion in 2022

Mumbai: Environmental, social and governance (ESG) bond issuance from India could bring in $15 billion in 2022, which is almost 50% more than the $10 billion raised in 2021, according to Bank of America.

Around $15 trillion of global funds focused in ESG space will be chasing investment opportunities in the next two years. This opens an opportunity for not just companies in the green businesses but also traditional industries like cement and steel that commit to reducing environmental impact of their businesses.

According to Bank of America head (India corporates) Sanjay Agarwal, globally large ESG funds had assets of $35 trillion in 2021. This is likely to go up to $50 trillion by 2025. “There is a strong investor base that has developed for ESG-related instruments that companies are tapping into. Issuers are incentivised through price reductions on achieving sustainability goals,” said Agarwal.

What makes this an opportunity for Indian corporates is that many are already eligible to float ESG bonds as almost all top 100 companies have published sustainability reports with firm commitments and goals. “We are advising companies on leveraging their ESG commitments in their capital raising program, across debt and equity,” said Agarwal.

Globally, ESG bond issuance in 2020 was over $500 billion. This went up to over $900 billion in 2021. This year, Bank of America anticipates ESG bond issuances in the $1.2-1.4 trillion range. In India, ESG issuance were around $10 billion in 2021. “This year, while the calendar is currently weak due to geopolitical issues, we expect the overall issuance to go up to $15 billion,” said Agarwal.

While traditionally green bonds have been linked to investment in companies that with a direct environment focus, ESG bonds can be issued by companies in any sector as long as they commit to improvement. “In addition to Use of Proceeds (UOP) bonds for ESG end uses, we expect sustainability-linked KPI (key performance indicators) bonds/loans to contribute to significant issuances from traditional industries including cement and steel, who are committed to reducing their carbon footprint,” said Agarwal.

While the investment cycle is yet to pick up, for issuers the time is ripe even if they use the proceeds for refinancing. “While interest rates are higher than last year, issuers are better off advancing their issuance as rates will only go up from here,” said Agarwal. (Source: Times of India)