Banks Are Really Cashing In on ESG Bonds

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.