Demand for climate-friendly bonds expanding due to demand from issuers and investors
A new report from Morgan Stanley shows the investment giant is bullish on the power of capital markets to fight plastic pollution. Although investment options geared toward specific environmental issues like plastic pollution are still limited, a general area called “impact investing” is progressing considerably.
The pool of impact targets is becoming wider due to demand — from both issuers and investors — for climate-friendly bonds such as green bonds and sustainability bonds. The firm reports that earnings calls that mention plastic waste increased 340% over 2018. As the sector moves forward, the Morgan Stanley report foresees the appearance of more specific financial products focused on plastic pollution.
Beyond the report, however, Morgan Stanley has announced a firmwide commitment to fight plastic waste and pollution through institutional securities, wealth and asset management, research and development funding, and public involvement, stating that the global plastics problem is not just environmental but financial.
Opportunities for solutions along the plastic value chain are identified as:
- Material engineering: Acceleration and scaling of alternative materials
- Product/business model design: Promotion of new products and circular business models
- Collection: Advancing collection, tracking, and sorting technologies, and engagement with and support of the informal waste sector
- Recycling and repurposing: Enhancement of recycling, composting, and repurposing
- Conversion and disposal: Development of responsible waste-to-energy systems
- Last-chance capture: Support for integrated waste management solutions
Growing Awareness of Issue
Although plastics sometimes provide a net environmental benefit over alternate materials, investors should also pay attention to the negatives of plastics. A new public awareness of the scale of plastic pollution is now driving consumer preference toward green products. Many corporations are already shrinking their plastic footprints in response, and the financial sector is following suit. Plastic pollution, once only the province of environmentalists, has become a widely recognized issue that investors can’t afford to ignore.
For instance, 34% of consumers actively buy products with less single-use plastic. If it’s not less convenient, 28% will make the same choice. Another 18% will make the choice if it saves them money, while only 20% of consumers do not consider plastic content at all in their purchasing decisions.
Successfully reclaiming value from used plastics before they are discarded will require a systemic strategy, and systemic change requires funding. In July 2015, Nasdaq launched its Sustainable Bond Market with a volume of 740 million euros, and it has grown impressively since then.
Green bonds also have been used for several years to catalyze innovative responses to ecological problems, such as bonds issued for watershed upgrades that financially recognize forests as water infrastructure just like dams, aqueducts, and treatment plants.
In 2018, the green bond market raised $174.9 billion, up from $173.5 billion the previous year, and Moody’s Investors Service has forecast a 20% annualized jump to $200 billion this year. In 2018, the sustainability bond markets had $18 billion of issues, an increase from $10.3 billion in 2017.
The Republic of the Seychelles even launched the first blue bond in 2018 specifically for protection of oceanic fisheries, a resource now recognized as threatened by microplastics.
While these investment markets have sometimes disappointed expectations, the general picture is of healthy growth, along with the skyrocketing growth of consciousness of plastics and the threats they pose to ecosystems and human health.