🔎 What’s going on?
Earlier this week, Alphabet Inc, Google’s parent company, issued largest-ever corporate ESG bonds in history.
😮 Wow, what does it mean?
Alphabet has sold $5.75 billion of sustainability bonds out of a $10 billion debt offering. There was very strong investor demand with the deal being oversubscribed (i.e. more investors wanted to buy the bond than what is being issued). At a time when a global recession is looming and government COVID-19 ‘green’ stimulus plans are still being worked out, this is certainly welcome news for investors and environmentalists.
💵 What exactly are sustainability bonds?
A company can raise money through either an equity or debt (i.e. bond) offering. In this case, Alphabet chose to raise money through a $10 billion debt offering but the key difference is - they chose to sell sustainability bonds to investors. These bonds can only fund specific projects that align with the company’s Sustainability Bond Framework. Sustainability bonds can be used to fund both social and environmental projects, whereas a Green bond is used to fund just environmental projects.
Alphabet has outlined how they intend to use the funds under their Sustainability Bond Framework, which lists eight areas: Energy efficiency, Clean energy, Green buildings, Clean transportation, Circular economy and design, Affordable housing, Commitment to racial equity, and Support for small businesses and COVID-19 crisis response.
❓ Why should I care?
This deal could mark a pivotal moment for green finance, in particular climate finance! There is a huge gap in climate finance at the moment. According to the Climate Policy Initiative (CPI), a thinktank estimates that a total of $510 billion - $530 billion flowed to climate-related financing in 2017. Whilst the UNFCCC estimates that $681 billion was directed towards climate-related financing in 2016.
🚦 Where do we need to be?
The World Economic Forum (WEF) estimates that by end of 2020, about $5.7 trillion will need to be invested in green infrastructure. The UN’s Intergovernmental Panel on Climate Change (IPCC) estimates that an annual investment of $2.4 trillion is needed until 2035 just for the energy system alone to limit temperature rise to below 1.5°C. There aren’t even estimates for how much funding is required to restore existing levels of biodiversity loss. Suffice to say that billions are just a drop in the ocean. Nonetheless, private sector finance such as Alphabet’s efforts are much needed and demonstrates strong leadership.
👤 What can I do about it?
If you are a financial professional, help unlock private finance and ensure it flows into projects that align with both the Paris Agreement and the Sustainable Development Goals.
Related: $9.8 billion pledged for Green Climate Fund