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Banks Are Really Cashing In on ESG Bonds

Stacks of U.S. $100 bills are arranged for a photograph in New York, U.S., on Thursday, Feb. 7, 2013. The U.S. dollar advanced in trading today to the highest in almost three weeks against a basket of major currencies. Photographer: Bloomberg/Bloomberg

(Bloomberg) —

While many banks have been condemned for contributing to the climate crisis by helping fossil fuel producers raise cash in debt markets, the banking industry as a whole is making more money from underwriting ESG-related bond sales.

Banks have earned about $3.6 billion in fees in 2021 from arranging sales of bonds advertised as instruments of green, social or sustainable development for companies, governments and other organizations, according to data compiled by Bloomberg. That’s more than double the $1.6 billion banks pocketed so far this year from issuing debt for fossil-fuel companies.

The numbers provide further evidence of the seemingly unrelenting cascade of money pouring into environmental, social and governance investing. About $750 billion of ESG-related bonds have been issued this year, compared with $468 billion during all of 2020, Bloomberg data show. Whether those bonds actually fund what they say they fund is another question, given the growing phenomenon of greenwashing, as industries scramble to mollify governments and consumers increasingly attuned to the consequences of climate change.

Analysts say that, when it comes to the banks, they’re just doing what they do: They’re following the money.

“Investment banks are almost always driven by what customers want, and demand for environmentally-friendly bonds isn’t going to wane anytime soon,” said Jeff Harte, an analyst at Piper Sandler Cos.

Harte adds there are growing regulatory and political pressures on the financial industry to do something about the deteriorating state of the planet, and that’s also providing an incentive to participate in ESG.

Jamie Dimon, chief executive officer of JPMorgan Chase & Co. Photographer: Marlene Awaad/Bloomberg

JPMorgan Chase & Co., the world’s top debt underwriter, is the No. 1 arranger of bond sales for the fossil fuel industry. But despite its role in assisting those companies most responsible for global warming, even JPMorgan has become more reliant on ESG. Almost 13% of the New York-based bank’s total bond underwriting business now comes from issuing ESG-related debt instruments, according to Bloomberg data. That’s up from 5% last year, and just 2% in 2018.

For the first time, JPMorgan is earning more in total fees from underwriting ESG debt—$223 million so far in 2021—than it is from arranging bond sales for fossil-fuel companies—$94 million. By comparison, in 2016 the lender led by CEO Jamie Dimon pocketed $16 million from ESG sales and $107 million from fossil-fuel debt sales, Bloomberg data show.

What’s happening at JPMorgan is mirrored across most of the industry. Take BNP Paribas SA—the giant French bank now generates 21% of its overall debt underwriting fees from ESG, compared with 1% as recently as five years ago. 

Among the world’s largest banks, Paris-based Credit Agricole SA is most focused on ESG, with 31% of the company’s debt underwriting generated this year coming from that part of the market. At Citigroup Inc., the number is 11%, but that’s up from 0.5% in 2016.

Mike Mayo, an analyst at Wells Fargo Securities, said he expects the numbers will only get bigger. “These are very early days in facilitating ESG and climate financing,” he said. “In baseball terms, we are in the first inning.”

Still, even if all that debt was truly funding solid ESG initiatives, the world would need five times more money to address climate disruptions. The banks, Mayo said, are more than happy to help make that happen.

“The reality is what’s good for the environment and society can also be good for banks’ profitability,” he said, “and after all, we’re talking about for-profit institutions here.”

Sustainable finance in brief

Harvest of corn as Brazil faces hydrological crisis, near Correntina, west of Bahia state in Brazil, on Tuesday, Sept. 21, 2021. (Dado Galdieri/Bloomberg Photos)


Bloomberg Green publishes the ESG-focused newsletter every Wednesday, providing unique insights on climate-conscious investing.

–With assistance from Tyler Kazio.

To contact the author of this story:
Tim Quinson in New York at standards@bloomberg.net

© 2021 Bloomberg L.P.

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