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JP Morgan enters the green bond market with a $ 1 billion debut deal



On Wednesday, the San Francisco skyline is obscured by orange haze.

AFP / Getty Images

JP Morgan Chase & Co. entered the world of green bonds on Wednesday, offloading the bank’s first series of bonds specifically to finance projects with a tendency towards sustainability.

While the banking giant organized debt with an environmental or social purpose for its clients and other companies, this was JP Morgan’s first $ 1 billion foray into issuing such bonds on its own behalf.

Many investors welcomed the move, not just because of JP Morgan’s weight
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brings to the market as the nation’s largest US bank by asset, but also due to growing acceptance in the US that a climate crisis threatens both environmental and financial instability.

To read: The CFTC’s groundbreaking climate change report launches a bipartisan warning about costly risks to the US financial system

JP Morgan’s securities deal struck as wildfires raged along the west coast, with smoke from the wildfires enveloping San Francisco Bay on Wednesday in a mysterious orange haze and underlining how climate change threatens to spill wildfire events. extremes, power outages and forced evacuations the norm.

“The bigger the players, the bigger the scale to move things faster,” said Steve Liberatore, Nuveen’s lead portfolio manager for environmental, social and governance (ESG) criteria and impact investing.

But Liberatore also stressed that a key part of addressing the ongoing “climate disaster” is to mitigate it in a “cost-effective way for the average person.”

This can mean achieving a lower cost of capital for renewable energy projects than is available for fossil fuel financing.

To that end, JP Morgan was able to lure prices on Wednesday amid high investor demand, offsetting the bonds with a 48 basis point spread on Treasurys BX: TMUBMUSD10Y, after they had initially floated in the range of 65 basis points.

A bond spread is the level of compensation that investors are paid above a risk-free benchmark to act as a creditor, with lower spreads often indicating high demand or lower expectation of default.

“In general, green bonds pay less, which means the cost of financing is lower,” said Pri de Silva, senior corporate credit analyst at Aware Asset Management, adding that JP Morgan priced similar bonds in May that are were trading closer to 58 basis points on Treasurys Wednesday.

“From a funding standpoint, I would say there was a 10 basis point advantage,” said de Silva, although he noted the “sunk costs” involved in creating the new green emission platform, including the provision of ” belts and braces “to ensure that a process is in place to monitor that only eligible projects are funded.

To that end, JP Morgan said proceeds from the green bond’s debut will fund a range of projects, from green buildings to renewable energy, in a public statement.

Notably, the bank also listed areas that will be excluded from financing bond proceeds, including projects related to coal, oil, gas and nuclear energy, as well as activities involving modern slavery, child labor and human rights exploitation. .

Amid an overall boom in corporate debt, the second quarter also saw a record $ 99.9 billion in “sustainable bonds” issued globally, according to Moody’s Investors Service, a category that includes green, social and sustainable bonds.

JP Morgan’s debut follows in the wake of Citigroup
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is Bank of America
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,
which issued green and social bonds earlier this year.

See: Bank of America has sold a one-of-a-kind Covid-19 bond

“Banks are in a unique position to issue green bonds as they are interrelated with the broader economy,” said Brian Ellis, portfolio manager, Calvert Green Bond Fund.

“From an investor’s point of view, the growth of green bond issuance offers greater opportunities for portfolio and project diversification, but also the ability to be more selective because there is a larger group to choose from.”

JP Morgan declined to comment.


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