By Thomas Kostigen
Lots of attention of late has been given to sustainable investing, especially highlighting the strong performance this year of stocks related to companies promoting environmental, social and corporate governance (ESG) policies.
Companies that manage these issues well have attracted trillions of dollars in new capital and are increasingly embraced by fund managers and institutions that want to invest in companies they believe to be more ethical. But the stock market isn’t the only way to invest.
Sustainable bonds are growing in interest and appetite among sophisticated investors. Earlier this month, Alphabet, the parent company of Google, proved that so: it sold $10 billion of bonds at record-low rates, including $5.75 billion of sustainability notes.
This is a big deal, even for Alphabet, which had only about $5 billion of debt yet more than $100 billion of securities, including nearly $20 billion of cash, on hand and a market cap of more than $1 trillion. The financing wasn’t then about the money: it points to issues Alphabet cares about, and identifies areas in which it plans to use the proceeds -Black businesses, affordable housing, the environment, and COVID-19-related investments.
To be sure, other companies have utilized sustainable bonds to finance social issues. For example, Goldman Sachs in 2012 issued the first social impact bond in the United States to reduce recidivism in New York. More recently, this year a manufacturing company was provided a sustainable loan that decreased in interest rate as the company’s environmental performance increased.
Interest rates for these credit facilities are low. And the idea is to encourage other companies to tap the sustainable investing market — more to effect change than to reap returns.
That may be a turn-off for those who prefer to go further out of the risk curve to gain higher returns. But for investors looking for safety, sustainable bonds could offer the chance to do well and do good by their portfolios. Moreover, for those concerned about the stock market reaching record highs and perhaps being overhyped, bonds provide a nice hedge.
A financial advisor can best analyze your portfolio and determine if sustainable bonds are a good option for you. They are at least worth asking about. In a report, Bloomberg noted that Alphabet’s offering was meant to be lead-in for other technology companies (the stocks of most this year, of course, have reached record highs).
“Alphabet has committed to providing impact measurements for the projects that are funded through this issuance,” Bloomberg reported. “Alphabet hopes to help develop this new market for environmental, social and corporate governance (ESG) bonds. Technology giants may join the rush to sustainable finance after the record bond sale from Alphabet. Issuance aligns with growing investor focus on social and environmental matters, and it’s being done at very low rates. Alphabet saved about three to five basis points on the funding cost by doing the deal in an ESG format. Borrowers with more debt outstanding could save as much as 15 basis points.”
Companies save. Investors profit. And the world may just prosper some, too.
Thomas Kostigen is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Thomas is a best-selling author and longtime journalist who writes about environmental, social, and governance issues.
