No. of Sustainability Linked Loans Issued Fell 80% YoY as ESG Sentiment Sours
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No. of Sustainability Linked Loans Issued Fell 80% YoY as ESG Sentiment Sours

The $1.5 trillion market for sustainability-linked loans saw an 80% decline in new lending from a year ago in the US.
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Bloomberg reported on Friday that the number of new Sustainability-Linked Loans (SLLs) plunged 80% in the US from a year earlier. That slump reflects the increasingly complex political environment that borrowers in the US have to navigate, marked by the anti-ESG movement and greenwashing concerns.  

Borrowers Steer Clear Of ESG-Linked Loans, Particularly in the US

Borrowers in the United States are significantly reducing their involvement in the second-largest market for sustainability-linked loans. This $1.5 trillion market, where borrowing is linked to environmental, social, or governance goals (ESG), has experienced an overall slowdown this year due to increasing interest rates and greenwashing concerns

According to Bloomberg’s data, the decline is most pronounced in the US, with new SLLs plummeting by 80% year-over-year.

This is because, in the US, borrowers grapple with typical reputational risks associated with ESG products and face potential backlash from the rising anti-ESG movement. As a result, there is an additional layer of complexity for those engaging in SLLs in the Americas, said Jacomijn Vels, the global head of sustainable finance at ING Groep NV.

Sustainability-linked loans, which started with ING arranging the first one over five years ago, have become the world’s largest market for ESG debt after green bonds. Between 2018 and 2021, SLL borrowing surged by over 960%, reaching $516 billion in annual deals, per BloombergNEF estimates. Two years ago, SLLs arranged in the US constituted 36% of the global total.

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ESG Sentiment Sours in the US

The rapid decline in American borrowers’ involvement in loans tied to ESG goals comes from the rapidly expanding anti-ESG movement.

As the year unfolds, approximately $187 billion of SLLs are set to mature globally, with around 90% in the form of revolving credit facilities. Given the escalating anti-ESG sentiments and potential greenwashing allegations, US borrowers are increasingly cautious. 

Bankers servicing one of the world’s largest ESG debt markets are proactively seeking legal protections to shield against potential accusations of greenwashing. This increased scrutiny comes as regulators start paying closer attention to a market that has thus far evaded comprehensive oversight. 

As a result, there are indications that lenders may exhibit more caution in supporting the sustainability-linked loan market in the coming years, marking a departure from the peak observed between 2021 and 2022.

In your opinion, what would it take for the ESG market to reclaim its previous peaks? Let us know in the comments below.