Verizon Likes Investor Scrutiny of ESG Bonds
The company has issued five green bonds, including a $1 billion offering earlier this month. “Added scrutiny ... enables our platform to continue to shine compared to the rest of the market.”
Verizon Communications Inc., the second-biggest issuer in the U.S. corporate investment-grade bond market, says investor scrutiny of environmental pledges is helping green bonds cement their dominance in the fragmented $6 trillion market for ethical debt.
Bond buyers are demanding more transparency and accountability from corporations selling debt linked to environmental, social, and corporate governance (ESG) issues, according to Scott Krohn, senior vice president and treasurer of the largest U.S. mobile carrier. Green bonds, whose proceeds finance specific projects, are the preferred label because investors can measure the impact of the bonds, he said.
“We’re in favor of it,” said Krohn, referring to the increase in investor analysis. “The added scrutiny provides further differentiation among the issuance platforms, and it enables our platform to continue to shine compared to the rest of the market. So in that sense, it has actually been a net benefit for us.”
The New York-based company has issued five green bonds, for a total of $5 billion, since it first tapped the market in 2019. Its latest offering, a $1 billion green bond maturing in 2033, attracted more than $6 billion of investor demand earlier this month, said Krohn. The company says the proceeds from the sale will help accelerate the company’s transition to greener electrical grids across the United States.
“The only green bond issuance that had a larger order book for us was our first one, in 2019,” Krohn said. “There’s a strong preference for making a difference and having an impact, which we demonstrate with the use of proceeds reporting. Our actions in terms of how we’re investing in green energy and renewables speaks louder than words.”
Wells Fargo & Co., along with four minority and women-owned firms—CastleOak Securities, Loop Capital Markets, Ramirez & Co., and Siebert Williams Shank—were lead underwriters of the deal. Verizon said in a statement that fees from the sale were shared equally by the five firms.
The global sustainable bond market has been on a tear this year, led by the Asia-Pacific (APAC) and Europe, the Middle East, and Africa (EMEA) regions. ESG bonds had the busiest February and April on record. And green bonds, the largest category of sustainable debt by amount, posted the busiest quarter ever.
This year, global green bond sales may reach about $600 billion, which would exceed 2021’s record levels, according to BNP Paribas SA, the biggest underwriter according to current Bloomberg rankings. With borrowers prioritizing the transition to cleaner business and investors returning to the market, issuance may go even higher, Trevor Allen, head of sustainability research at BNP, wrote in a note in February.
The picture is different for other types of ESG bonds. Sales of sustainability-linked bonds (SLBs) fell for the first time last year, after soaring almost tenfold from 2020 to 2021. Unlike green, social, and sustainability notes that finance specific projects, SLBs can be used for general corporate purposes, provided issuers pledge to meet certain social or environmental thresholds, such as cutting carbon emissions.
Some companies have been criticized for selling SLBs with weak and flexible targets. Sales of the bonds are down about 26 percent this year. The structure isn’t “nearly as compelling” because it’s harder for investors to track the impact of the bonds, said Krohn.
Showing the impact of ESG bonds and reporting on the use of proceeds is the “best recipe to have a successful program and stand out from some of the noise coming from transactions that maybe have lesser quality of reporting,” Krohn said.
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