Offerings of green, social and sustainability debt make up 17 percent of this year's 407 billion euros (USd 490 billion) in sales, well above the 7 percent share in the same period of 2020, according to data compiled by Bloomberg.
That was capped by Italy’s record-breaking green bond and a Daimler AG deal this week.
The trend looks set to continue in 2021 as the European Union issues more social bonds and plans -- along with Spain and the U.K. -- to sell debut green bonds.
Firms such as German utility E.ON SE that are keen to enhance their eco credentials can use proceeds toward meeting environmental goals, while the number of green investment funds is soaring.
"ESG remains a very strong theme amongst our clients," said James Cunniffe, director for corporate syndicate at HSBC Holdings Plc.
"It feels like there is not a single discussion we hold with our clients that doesn’t touch upon ESG."
Italy’s bond was the most subscribed in Europe this week as it amassed 80 billion euros of investor orders and sold 8.5 billion euros, with both numbers the highest ever for green bonds.
The record demand showed "investors are mobilising support towards sovereigns that bring their climate ambitions to the capital markets," said Vittorio Ogliengo, executive chairman of BNP Paribas CIB in Italy, one of the bookrunners.
That was just one of nine environmental, social or governance deals to already price in March. Companies have been busy.
Mercedes-Benz maker Daimler sold 1 billion euros of green notes on Thursday, slashing about 25 basis points off the spread to investors following 2.6 billion euros of orders, according to a person with knowledge of the transaction.
That’s further evidence the surge in demand for ESG assets is enabling a so-called greenium, where borrowers achieve cheaper financing than from conventional bonds.
The biggest corporate deal so far this year was a 2-billion-euro green sale by Spanish utility Iberdrola SA. Sustainability-linked bonds, which require companies to set overall green targets, have also exploded in use, yet are drawing concerns over greenwashing if the goals are too soft.
"The topic of ESG is unavoidable for European corporates, no matter the sector or the name," said HSBC’s Cunniffe.
"Companies are expected to be able to communicate their ESG strategy to the market and investors factor this into their investment decisions."
This year’s total 71 billion euros of ESG debt deals helped push Europe’s yearly syndicated primary market issuance beyond 400 billion euros this week in the fastest time ever. Sovereigns, with nearly a third of the total sales, are seeking to finance a greener recovery from the pandemic.
Their share is likely to take off when the EU starts sales under its 800-billion-euro recovery fund, a third of which is to be comprised of green debt. The bloc plans to issue a framework of standards for such sales, which may then be followed by others in the region.
"Investors in fixed income care more about sustainability than before and increased regulation is reinforcing this trend," said Ronald van Steenweghen, who manages around 1.5 billion euros at Degroof Petercam Asset Management and bought Italy’s green notes.
"This will likely intensify over the coming months, years."