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ESG Market Record Is Causing Some Bubble Anxiety: Green Insight

ESG Market Record Is Causing Some Bubble Anxiety: Green Insight

MsMinister of latvia in Copenhagen Denmark

Photographer: Francis Dean/Corbis News

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The investing world of environmental, social and governance just broke through another barrier, and the growth is starting to raise questions (and even concern) about how much bigger it can get.

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Total green bond issuance topped $1 trillion in the past week, joining ESG-focused funds that have a similar amount in assets under management. In the past month alone, more than $50 billion of green bonds were sold, including debuts in Germany by a trio of automakers including Volkswagen, and JPMorgan, the biggest U.S. bank by assets, according to data compiled by BloombergNEF.

Is it a bubble? Jared Dillian, an investment strategist at Mauldin Economics, wrote this week in Bloomberg Opinion that he thinks it just might be. “ESG is nothing but a passing investment fad, not unlike smart beta, the BRICs, structured products or any of the myriad market bubbles over the last 25 years, small and large,” he said. 

Still, analysts at Bank of America expect another $450 billion of green, social and sustainable debt to be issued in 2021, roughly equaling this year’s issuance. Sales of green bonds, where proceeds are ring-fenced for environmental projects, will account for “the bulk” of the transactions, Bank of America said.

The Bank for International Settlements, which is often dubbed the central bank for central banks, said last month that it has seen no proof that green bonds result in lower corporate carbon emissions. The median change in carbon intensity—the ratio of carbon emissions to revenue—of green bond issuers has been minimal over time, the BIS said.

Concern about the lack of standards in the green bond market surfaced

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