Sustainable Finance Round Up: August 2023

Our Monthly Round Up series provides clients with condensed trends and take-aways on sustainable debt market movement.

Market Musings

August sustainable bond issuance totalled U$60B, rebounding from the prior month as green bond issuance increased ~60%. Year to date, sustainable bond volumes remain ahead of 2022 by +3%. As borrowers return to the market in September after the typical summer slowdown, we expect ESG-labeled issuance to pick up, particularly in the European markets.

One Year Later: Taking Stock of the Inflation Reduction Act (IRA)

Signed into law in August 2022, the Inflation Reduction Act (IRA) marked the largest climate package in the U.S. to-date, providing funding certainty and incentives for immediate decarbonization efforts and technologies. As most provisions became effective in Q1 2023, select sectors have surged ahead in terms of leveraging the IRA, while others have lagged as further policy clarity is needed.

• IRA's Expanded Economic Impact: Updated estimates expect the IRA to direct over U$1T in federal funding towards the energy transition by 2032 (via grants, loans, tax credits, etc.) – significantly higher than initial estimates of ~U$370B (see table below).
• Activity in Proven Sectors Flourish While Others Search for Footing:
  • Automotives (EV/Battery): The boom in EV battery production driven by IRA tax credits has been effectively paired with the issuance of green & sustainability bonds in the sector which increased +59% in 2023 YTD vs. the same time last year.
  • Energy (Carbon Capture): Carbon capture technologies such as DAC have seen extensive support from the IRA as well as the Bipartisan Infrastructure Law, spurring U$1.2B in grants from the U.S. Department of Energy ⁽¹⁾ and M&A activity from a U.S. energy major in August ⁽²⁾.
  • Utilities (U.S. Offshore Wind): Supply chain challenges, lack of funding guidance, and slower approval processes have caused setbacks for U.S. offshore wind this month as key players announced delays and write downs ⁽³⁾.

While some borrowers have taken to financing related IRA investments in the sustainable bond market, we expect companies will continue to access a variety of financing solutions and sources (e.g., debt, equity, cash on hand), dependent on the technology and project.

1. Source: Reuters
2. Source: Reuters
3. Source: New York Times

1. Source: Bloomberg; Corporate/Government bond new issuance volume (excluding loans) as of 8/31/2023.
2. Source: Bloomberg; Corporate/Government new issuance volume across sustainable debt products (including loans) as of 8/31/2023 – note that sustainability-linked loan and green loan data is typically revised upwards with a 2-month lag.

TD Securities' ESG Solutions

TD Securities' ESG Solutions team is the centralized ESG expert resource, delivering financing advisory services, thematic and investor insights, and carbon markets solutions to help our clients reach their goals.