AB: Financing a Sustainable World - Global Banks Take Center Stage

NORTHAMPTON, MA / ACCESSWIRE / September 12, 2023 / AllianceBernstein

Foto: Accesswire

Tiffanie Wong, CFA| Director-Fixed Income Responsible Investing Portfolio Management; Director-US Investment-Grade Credit

Patrick O'Connell, CFA| Director-Fixed Income Responsible Investing Research

Markus Peters| Director of Fixed Income Business Development and Strategy-Responsible Investing

While companies such as clean energy providers and electric vehicle manufacturers bask in the limelight, an entire sector driving the shift to a sustainable world goes largely unnoticed. Step forward the world's banks, indispensable providers of capital and crucial agents of change.

Ask a typical investor about the leading companies in sustainable progress, and chances are you'll hear a string of technology and consumer products names in reply. That's only natural, as many of the stock markets' standout performers feature in these sectors. But for fixed-income investors, the world's banks should rank high on the priority list too.

Banks Are Central to Sustainable Development

Financial companies are large issuers in global debt markets and hence big constituents in fixed-income benchmarks. That makes them a key part of most fixed-income portfolios. Fixed-income investors have an array of bond instruments to choose from across a bank's capital structure (unlike the relatively limited choice of bank equity for shareholders). Sustainable fixed-income investors can select from banks' conventional bonds-via both senior and subordinated debt-and their green, social or sustainability (GSS) bonds.

Banks provide capital for specific green or social projects linked to sustainable objectives, and regularly opt to finance them using GSS bonds, with a whopping US$367 billion issued globally at the end of 2022, Bloomberg reports.

In most countries, it is typically banks-not capital markets-that are the main source of credit. This makes the banks central not only to the clean energy transition and to carbon-reducing initiatives, but also to wider positive social changes.

Banks' Drive to Sustainability Is a Global Phenomenon

While European banks have led the way in sustainable financing initiatives and the issuance of GSS bonds, these examples show how sustainable lending best practices have spread across the banking world:

Empowering women. Canada's Bank of Montreal (BMO) pioneered bonds that support female entrepreneurship, issuing in 2021 a Women-in-Business social bond aligned with: UN Sustainable Development Goal (SDG) 5, "Gender Equality"; SDG 8, "Decent Work and Economic Growth"; and SDG 10, "Reduced Inequalities." Proceeds are allocated to women-owned enterprises, including micro, small and medium-sized businesses, based on a stated aim of supporting an inclusive society with zero barriers and a thriving economy by doubling support for women-owned businesses in Canada.