Regulatory hurdles & greenwashing deter clients from $1.5 trillion ESG debt market
![Regulatory hurdles & greenwashing drive clients away from $1.5 trillion ESG debt market](https://sustainabilityeconomicsnews.com/wp-content/uploads/2024/03/Depositphotos_532407858_S.jpg)
As highlighted by insiders, corporate clients are increasingly withdrawing from the world’s second-largest ESG debt market due to added regulations, reduced incentives, and fears of greenwashing.
The market primarily deals with sustainability-linked loans (SLLs), valued at approximately $1.5 trillion, second only to green bonds globally.
While previously unregulated, the emergence of financial oversight is prompting a broader retreat from the market as regulators impose stricter standards on ESG labelling.
In the previous year, issuance of SLLs experienced a drastic 56% drop to $203 billion, as reported by Bloomberg data. Despite 2023 presenting challenges across debt markets, the decline in SLL issuance was nearly double that of green loans.
Furthermore, while green loan sales have surged in 2024, SLL issuance has further dwindled, plummeting by 74% thus far this year, as per Bloomberg data.
Rachel Richardson, head of ESG at London-based law firm Macfarlanes, says this year might be “a bit of a crunch point for both borrowers and lenders” in the market for sustainability-linked loans.
“When it comes to refinancing SLLs from three or four years ago, both borrowers and lenders are going to have to have a really hard think about where the market was then — in its total infancy — and where the market is now,” Richardson said. The question then becomes “whether it’s still appropriate for them to continue borrowing via an SLL.”
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