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Indian firms warm up to ESG bonds in capital-raising plans

Industry experts believe that while there is not much of a pricing benefit for such bonds, as more and more dedicated pools of capital are set up for ESG investments, a pricing benefit may emerge for companies that go the ESG way. iStockphotoPremium
Industry experts believe that while there is not much of a pricing benefit for such bonds, as more and more dedicated pools of capital are set up for ESG investments, a pricing benefit may emerge for companies that go the ESG way. iStockphoto

Indian companies raised $4.94 billion through ESG bonds, including green bonds, with the largest contribution coming from green bonds raised by renewable energy producers such as Greenko, ReNew Power and JSW Hydro Energy, according to data from financial markets tracker Refinitiv

The growing importance of ESG or environmental, social and governance(in corporate boardrooms) in India is now also being reflected in the capital-raising plans of India Inc, with Indian companies raising almost $5 billion through ESG bonds so far in 2021, higher than the amount raised in any of the previous years.

Indian companies raised $4.94 billion through ESG bonds, including green bonds, with the largest contribution coming from green bonds raised by renewable energy producers such as Greenko, ReNew Power and JSW Hydro Energy, according to data from financial markets tracker Refinitiv.

Companies that tapped the ESG bond market also include Shriram Transport Finance, which raised funds through social bonds; Adani Electricity Mumbai Ltd and UltraTech Cement Ltd, which issued sustainability-linked bonds (SLBs).

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“Over the last year, ESG has gained more importance and is no longer just a buzzword. Companies are being assessed on adherence to ESG parameters and their sustainability practices are being monitored. All large corporations are seriously looking at ESG across their businesses. There will be more such bond offerings going ahead given the attention ESG is getting from both investors and issuers," said Anuj Kapoor, managing director and head of investment banking, UBS India.

Globally, too, ESG bond offerings have been seeing a sharp rise, as such concerns have taken centre stage following the coronavirus outbreak.

Global issuance of green, social and sustainability bonds, collectively also known as sustainable bonds, is expected to hit $850 billion in 2021, a new annual record and a 59% jump from 2020, Moody’s Investors Service said in a report on Thursday.

“Following record first-half issuance, we now forecast about $450 billion of green bonds and $200 billion each of social bonds and sustainability bonds this year," said Matthew Kuchtyak, assistant vice president, analyst, Moody’s.

“We still expect sustainable bonds to account for 8-10% of global debt issuance in 2021, as issuers across all segments of the market continue to explore how they can link their capital markets activity with their sustainability objectives," he said.

The global issuance of sustainable bonds in the second quarter jumped 66% from a year earlier to $189 billion, Moody’s said. This consisted of $94 billion green bonds, $46 billion social bonds and a quarterly record $49 billion sustainability bonds. The quarterly issuance total was the third-highest on record, indicating that market momentum is still exceptionally strong, the rating agency said.

Industry experts believe that while there is not much of a pricing benefit for such bonds, as more and more dedicated pools of capital are set up for ESG investments, a pricing benefit may emerge for companies that go the ESG way.

“Presently, there is not much of a pricing benefit. In some cases, issuers may get a very marginal benefit. This is essentially due to the pool of investors for regular and ESG offerings not being very different. But dedicated pools will become bigger and allocation to ESG from big fixed income funds should grow due to which a more conspicuous pricing benefit should emerge," Kapoor said.

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