On 3 August, Google parent Alphabet Inc. announced the issuance of a USD $5.75 billion environmental, social and governance (ESG) bond - the largest ever in the corporate sustainable or green bond market. It aims to support investments in both environmental and social initiatives including the focuses on racial equality, small and medium businesses impacted by COVID-19, as well as affordable housing, clean energy projects and green buildings.
This ESG portion is part of Alphabet’s significantly oversubscribed USD $10 billion debt offering which also set record low yields compared with the market. The seven-year bonds will yield 0.8% whereas the yields of ten-year and 40-year bonds are at 1.1% and 2.25%, respectively.
Alphabet and Google CFO Ruth Porat wrote in a blog post that the sustainable bonds are an emerging asset class. According to Moody’s, global sustainable bond issuance totaled USD $99.9 billion in the second quarter of 2020, a quarterly record and 65% higher than the first quarter of this year.
With the growing investor interest, bond issuers have a better opportunity to lower their costs of debt financing. The result is clear - Alphabet saved about three to five basis points on the funding cost by doing the deal in an ESG format – and reinforced that sustainable business is being rewarded by the capital market.
Companies from a variety of sectors are increasingly utilizing ESG themes to differentiate their bond offerings and compete with general purposes corporate bonds for more favorable yields. ESG risks are not only being evaluated as a core element of the issuer’s fundamentals but are becoming into greater focus given the stakeholders’ intensified scrutiny of high impact issues, such as responses to public health crisis, climate change and racial justice.
In addition to the Alphabet deal, other WBCSD members including Acciona, Ayala Corporation, Iberdrola, Santander, and Stora Enso issued a total of more than USD $3 billion green or sustainable labelled bonds in the last three months achieving both financial and impact goals for their business.
For more information on Alphabet’s ESG bond click here.