A global artificial intelligence boom, driving demand for energy-intensive data centres, could boost U.S. green debt sales, according to Morgan Stanley.
As per a report by BNN Bloomberg, Melissa James, vice chair of global capital markets at Morgan Stanley, said that growing electricity requirements of AI data centers could increase demand for renewable energy sources and, thereby, boost green debt sales.
Global green debt issuance is currently on track for its strongest pace since the market’s inception in 2007, even as US issuance slows down. Morgan Stanley predicts sales of this kind will reach that trillion-dollar mark in 2021 before the year comes to a close.
“We’re on pace to actually meet or maybe even exceed slightly that record issuance level,” said James.
The sale of ESG-linked bonds had cooled in the recent past, largely due to pushback from Republicans and greenwashing concerns. But James says that could shift as demand for energy increases with the AI boom, renewing interest in green debt.
She also said that what is really driving global sustainable bond markets now is climate concerns, and putting weight into the approaching 2030 emission reduction target.
Corporate issuance in the US has relatively been flat, and some of the issuers already have funded their key projects. James reiterated that perpetual issuers would continue to issue at periodic intervals, while the volumes would be smaller.
She highlighted two major future drivers of corporate issuance: investment in decarbonization projects and growing power needs driven by the AI boom. He has further pointed out potential in green convertible bonds for high growth companies in energy transition space. These companies use convertible bonds to reduce interest costs by leveraging their perceived equity upside.
These are typically 144A market issued transactions providing additional benefits to borrowers.
In addition to the US, Latin America is building up as an area of tremendous development for ESG-labeled issuance because of its geography and natural resources. For example, Brazil could be the world’s lowest–cost producer of green hydrogen due to the abundance of water in that country.
The climate crisis and geopolitical conflicts have also encouraged a need to rethink and rehouse supply chains, exposing opportunities for nations such as Mexico through nearshoring or “friend-shoring.”