Trees from Trades Benefits from Strong ESG Fixed Income Market
Trees from Trades Benefits from Strong ESG Fixed Income Market
Head, Sustainable Finance, Products and Strategy
John Uhren is Managing Director and Head, Sustainable Finance, Products and Strategy, at BMO. He leads product development and strategic initiatives across the ente…
John Uhren is Managing Director and Head, Sustainable Finance, Products and Strategy, at BMO. He leads product development and strategic initiatives across the ente…
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Earth day launch of Trees from Trades Benefits from Strong ESG Fixed Income Market
On earth day, BMO Capital Markets has committed to planting trees based on fixed income securities traded, including a commitment to plant 10 trees for every $1mm of ESG bonds traded. BMO’s Trees from Trades program combats climate change in a meaningful way, while aligning with BMO’s overall strategy to Grow the Good and push towards its goal of a Net Zero Future. With the strength of the ESG-labelled debt market, we expect several thousand trees to be planted – a great result for our clients and the planet.
Outstanding supply of ESG-labelled debt grew 70% in 2020, and has been growing steadily ever since the first labelled green bond was issued in 2007. The first quarter of 2021 has seen a continuation of this whirlwind pace, with ESG-labelled debt supply totaling over $250bn in global issuance across all currencies. Q1 has also seen a significant jump in the issuance of non-green bonds, including social and sustainability bonds. While the pandemic has been one of the main drivers behind this shift, volumes will likely remain high in a post-pandemic world, given their wider scope and applicability versus green bonds. There has also been a marked increase in newer forms of ESG debt, including sustainability-linked bonds and loans. Total issuance of sustainability-linked products surpassed $28bn from 55 issuers over 10 sectors in Q1, and we expect to see exponential growth in SLBs and SLLs in the coming year as issuers take advantage of the flexible format and opportunity for alignment with sustainability strategy.
No longer a niche segment of the fixed income market, ESG fixed income is now a core component of the investment process around the world. While European investors have historically been the leaders in the ESG fixed income market, U.S. and Canadian investors are catching up quickly, with over $17 trillion and $3 trillion in responsible investments AUM respectively [source: US: https://www.cnbc.com/2020/12/21/sustainable-investing-accounts-for-33percent-of-total-us-assets-under-management.html; Canada: https://www.riacanada.ca/research/2020-canadian-ri-trends-report/]. With the UN-convened Net-Zero Asset Owner Alliance, which calls for investors to align their portfolios with a 1.5 degree scenario, already representing $5.6 trillion assets under management, there will be continued exponential growth in ESG investments across all asset classes going forward.
Given increased investor demand, improving valuation/comparison methods, shifts in political leadership and attitudes towards environmental initiatives, we can expect to see additional demand for, and supply of, ESG fixed income products in 2021 and beyond. And as the market surges, so too will the number of trees planted under the Trees from Trades program.
As the bank that is committed to Boldly Growing the Good in Business and Life, BMO is here to support all of your ESG investment and issuance needs – and on earth day, that includes planting trees on your behalf to build a more sustainable future.
