Your Evening Briefing: The Enemies of ESG Are Gaining Ground

It’s working. While ESG bonds continue their upward trajectory globally and across Europe, in America they’re getting hammered by politics. ESG proponents howl that the Republican Party’s attacks are meant to mollify financial backers led by Big Oil while making hay on cultural issues with a far-right base, but the war is bearing empirical fruit. Companies sold only $6 billion of bonds last quarter to pay for projects that help the environment, achieve a social goal, or improve their governance. That’s down more than 50% from the same time last year, according to data compiled by Bloomberg. Moreover, some states are barring external asset managers that oversee public pension funds from considering ESG criteria. That could be making skittish borrowers even less interested in ESG debt.

But there’s more to the downdraft, and it’s less about politics than greed. Money managers are increasing their scrutiny of some ESG bonds, fearful of being swept away on the rising tide of greenwashing. That’s particularly an issue for sustainability-linked bonds, which can reward companies for meeting environmental goals by, say, cutting their required interest payments, or punish them for failing to do so. Proceeds of debt offerings can often be used for anything the company wants, instead of being tied to a particular projects. “Before, ESG could do no wrong,” said Andrew Poreda, a senior research analyst at Sage Advisory Services. “Now there’s more skepticism.”