The Sustainable Debt Market Has Become Unsustainable
There’s way more demand for bonds than there is supply, which isn’t a good thing.
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The European Union has offered its first social bond—as in the middle initial of ESG: environmental, social, and governance—in a two-part, 17 billion euro ($20.2 billion) sale. Investors were ravenous. When all was said and done, the offering was oversubscribed 14 times over. Orders blew past 233 billion euros, making it likely the biggest debt sale ever. It’s easily double the previous record demand of 108 billion euros for Italian debt in June.
There are a number of reasons EU’s social bond was in such high demand. For one, it carries the bloc’s AAA credit rating. It’s also the EU’s first joint debt offering since the bloc agreed to its pandemic recovery deal. The fact that it’s a social bond—the fastest-growing segment of sustainable debt, the asset class that also includes the trillion-dollar green bond market—is important. How is it important? Well, it’s complicated.