AI boom drives US green debt sales despite ESG setbacks

AI boom drives US green debt sales despite ESG setbacks | Benefits and Pensions Monitor

The surge in AI-driven data centers increases demand for renewable energy, boosting US green debt sales

AI boom drives US green debt sales despite ESG setbacks

Morgan Stanley predicts that the global artificial intelligence boom, driving demand for energy-intensive data centers, could boost sales of green debt in the US.

In a report by BNN BloombergMelissa James, vice chair of global capital markets at Morgan Stanley, stated that the growing electricity needs of AI data centers could increase demand for renewable energy sources, bolstering green debt sales.

Despite a slowdown in the US, the global green debt issuance is currently at its fastest pace since the market’s inception in 2007. By the end of the year, Morgan Stanley expects sales to reach the trillion-dollar mark seen in 2021.

“We’re on pace to actually meet or maybe even exceed slightly that record issuance level,” said James.

Sales of ESG-linked bonds in the US have dropped in recent years due to Republican pushback and concerns over greenwashing. However, James believes the AI ​​boom’s increased energy demands could drive renewed interest in green debt.

Corporate issuance in the US has been relatively flat, with some issuers having already their key projects. James noted that perennial issuers would continue to issue bonds periodically, albeit at smaller volumes.

She identified two main drivers for future corporate issuance: investment in decarbonization projects and the growing power needs from the AI ​​boom.

James also highlighted the potential of green convertible bonds, particularly for high-growth companies in the energy transition space. These companies use convertible bonds to lower interest costs by leveraging their perceived equity upside.

Such transactions are typically issued in the 144A market, offering additional benefits to borrowers.

Outside the US, Latin America is emerging as a significant growth area for ESG-labeled issuance due to its geographic characteristics and natural resources. Brazil, for example, could become the world’s lowest-cost producer of green hydrogen due to its abundant water resources.

The climate crisis and geopolitical conflicts have also spurred a need to rethink and relocate supply chains, presenting opportunities for countries like Mexico through nearshoring or “friend-shoring.”