After a record year for sustainability-related debt issuance, demand for sustainable and green bonds is set to "go through the roof" in 2021, Trucost CEO Richard Mattison said in the latest episode of Market Intelligence Live, a live interview series from S&P Global Market Intelligence. Trucost, a division of S&P Global, assesses and prices risks relating to climate change, natural resource constraints and broader ESG factors.
As the world economy recovers from the global coronavirus pandemic, "there is strong rationale to rebuild in a way that is more sustainable and more resilient to future shocks," Mattison said, citing Joe Biden's promise to "build back better" and the U.S. President-elect's commitment to make climate policy, renewable energy and green infrastructure top priorities for the new administration.
Critically, the incoming Biden administration is expected to announce that the U.S. will rejoin the Paris climate accord. This means the U.S. will "likely have to look at ambitious net zero carbon emissions targets for 2050," Mattison said. He also noted that 30% of Europe's €750 billion recovery fund is dedicated to green and sustainable projects.
"There is a lot of government-issued debt that will be tagged to sustainability," Mattison added. "When governments do that, they attract private markets to crowd in, so we can really expect to see a boom in sustainable debt."
Another significant development, Mattison said, is the Federal Reserve's recent announcement that it will join the Network for Greening the Financial System, which could mean climate stress tests for U.S. banks.
But green financing will also face major challenges in the year ahead, especially when it comes to disclosure. Many companies are already voluntarily disclosing ESG information. What's lacking, according to Mattison, is standardization, which would allow investors and other stakeholders to make sense of this information and compare it across companies, industries and markets. The investment community would "welcome" a move by Wall Street's top regulator, the Securities and Exchange Commission, to regulate ESG disclosures in the U.S., Mattison added.
In the interview, Mattison also cited improved energy grid efficiency as a "massive opportunity" for public officials and regulators to decarbonize their economies.
Though new climate policies could create new costs for businesses, Mattison said the price of doing nothing would be even higher.
"We found 13% of earnings could be at risk if companies have to pay a carbon tax," he said. "On the flipside, if there is no successful climate policy, 60% of the S&P 500 have assets that are at high risk from the physical impacts of climate change."
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