Over the last two years, U.S. investors have been moving capital into sustainable and responsible investment strategies at astonishing rates, with assets under management growing from $12 trillion in 2018 to $17.1 trillion in 2020. This 42% increase suggests that approximately 1 out of every 3 dollars under professional management in the U.S. has some level of environmental, social and governance (ESG) mandate.[1] While there are many different approaches to this form of investing, there has been a growing interest in the specific area of sustainable finance ever since the European Investment Bank (EIB) issued the world’s first “green bond,” called the Climate Awareness Bond, in 2007.

In general, sustainable finance refers to the practice of incorporating ESG factors into financial decision-making. For investors, this means researching and buying securities whose proceeds will help mitigate material ESG risks and/or capitalize on ESG opportunities. For issuers, this means selling securities for these projects — for instance, the EIB’s Climate Awareness Bond was a structured product with proceeds earmarked for renewable energy and energy efficiency projects. Investor preferences and issuer goals concerning sustainable finance can vary, and they constitute an ever-growing market of solutions that encompass individual project finance (e.g., wind farms), operational initiatives (e.g., energy efficiency), credit (e.g., loans with pricing benefits), and securitized products (e.g., green bond funds). 

In our experience, the most commonly used solutions are bonds and/or loans that fall into the following categories: 1) Green, 2) Social, 3) Sustainable and 4) ESG-linked. The graphic below highlights the differences across these approaches, with a significant degree of customization possible within each category.

Commonly Utilized Sustainable Finance Instruments[2]

Green Social Sustainable ESG-Linked
  • Environmental use of proceeds (UOP)
  • Energy efficiency, green buildings, pollution prevention, etc.
  • More prevalent in the bond market
  • UOP targeted at bettering the lives of a specific population
  • Access to essential services (education, vocational training, healthcare and financial services)
  • Affordable housing, food security, COVID-19 capex
  • Incorporates both green and social UOP
  • Expect growth to be accelerated by pandemic-related financings
  • Issued for General Corporate Purposes (no specific UOP)
  • Key Performance Indicators (KPIs) are identified for issuer
  • Pricing benefit linked to meeting KPIs
  • More prevalent in loan market

A Rapidly Evolving Market

Growing demand for ESG-focused investments can potentially provide unique opportunities for companies, and U.S. issuers and borrowers are working to seize the moment. Since 2012, the annual supply of ESG fixed-income securities has grown at an approximately 49% compound annual growth rate — from $31 billion to $758 billion at the end of 2020. Prior to 2012, all ESG-focused issuance totaled just $105 billion.[3]

Chart 1: Growth of Sustainable Finance


View accessible version of this chart.

As the market has evolved, so too have the goals of sustainable finance products. Historically, Green, Social and Sustainable products focused primarily on use of proceeds, with the targets outlined in offering documents. One example of this approach is PNC’s own first Green Bond, issued in 2019, that seeks to support renewable energy, energy efficiency and green building projects — a summary of which can be found here

More recently, sustainable finance initiatives have been helping issuers enhance their ESG profiles while also achieving their financial and operational goals. Many issuers are taking advantage of ESG-linked structures, which means that instead of designating specific uses of loan proceeds, ESG-linked loans are structured to provide a pricing benefit to borrowers who achieve periodic progress towards unique, negotiated KPIs. For example, an investment-grade manufacturing company recently closed on an $800 million syndicated revolving credit facility. Based on improvements of the organization’s ESG profile assessed by Sustainalytics,[4] the drawn pricing on the revolver could be reduced by as many as 5 basis points (bps). Conversely, if the company’s ESG profile deteriorated, they could incur a negative pricing impact of up to 5 bps. The burgeoning demand for ESG investment products is providing a readily available market for issuers interested in financing sustainability-focused goals at attractive rates. 

Sustainable Financing in Healthcare

The global COVID-19 health crisis has reenergized and accelerated investor interest in ESG factors across the corporate landscape. Given the headlines and acute focus on the healthcare industry over the last year, it is no wonder there has been additional attention paid to ESG issues within the sector that might indicate how well companies are managing vulnerabilities across their operations. Moreover, healthcare organizations can message their initiatives using both sides of the balance sheet, whether through setting investment policy objectives or accessing the capital markets with bonds having sustainably focused uses of proceeds. First, we will focus on the financing side.

Social bonds focused on healthcare even predate Green Bonds, with the International Finance Facility for Immunization’s (IFFIm) 2006 issuance that supported immunization development, procurement and distribution for the Gavi, a global vaccine alliance.[5] Today, countries are facing mounting debt from COVID-19 responses, and even national governments are turning to sustainable financing mechanisms to improve healthcare services, supplies and infrastructure. For instance, workplace safety, product governance and access to personal protective equipment (PPE), among other key medical supplies, fall squarely within the “S” and “G” of ESG.

At a company level, sustainable finance during the pandemic has been used to support lending to hospitals, nursing facilities and healthcare manufacturers. One recent example involves Seattle Children’s Hospital (SCH), a nonprofit healthcare provider, that sought to bolster its balance sheet and support its ESG goals by accessing the capital markets. SCH issued $402.075 million of Green Bonds in February of 2021 to support its goal of carbon neutrality by 2025, and in pursuit of that goal, the hospital is building new, energy-efficient facilities and expanding existing ones closer to where patients and employees live. SCH is also offering incentives for staff to find alternative means to commute, and it is expanding remote work options to further reduce its carbon footprint. The projects are expected to receive the Leadership in Energy and Environmental Design (LEED) certification upon completion, and, through this issuance, SCH was able to achieve some interest rate savings by refunding existing bonds at the same time. The full offering memorandum can be accessed on munios.com.

Seattle Children’s Hospital provides just one contemporary example of healthcare organizations successfully taking advantage of the recent wave of interest in sustainable finance among the investor community. Uses for sustainable finance will continue to evolve with the marketplace, and it is important for issuers to build a framework so the organization can define, measure, track and report on ESG initiatives to investors and the community.

In addition to considering the use of proceeds of sustainable financing, organizations are also seeking ways to manage material ESG risks and position themselves for greater resiliency in the face of future crises. Within the broad range of healthcare companies — from healthcare IT services to pharmaceuticals and healthcare delivery to medical equipment and supplies — there are a number of E, S and G issues that companies may want to consider for Green, Social, Sustainable or ESG-linked sustainable financing.

For instance, issuers could focus on the following ESG issues as part of their offering:

Material ESG Issues[6]

Environmental Social Governance
  • GHG* Emissions Intensity - Operations
  • Energy Management
  • Waste & Hazardous Materials Management
  • Environmental Impacts of Products & Services
  • Product Design & Lifecycle Management
  • Human Rights in the Supply Chain
  • Data Privacy & Security
  • Access to Services & Pricing
  • Product Quality & Safety
  • Advertising & Marketing Ethics
  • Occupational Health & Safety
  • Employee Engagement, Diversity & Inclusion
  • Business Model Resilience
  • Intellectual Property Rights
  • Business Ethics
  • Anti-Competitive Practices
  • Oversight of Regulatory & Policy Environment
  • Bribery & Corruption

* “GHG” = Greenhouse Gases

Additional Benefits to Sustainable Finance

When considering the benefits of sustainable finance, it’s clear they go beyond the possible financial outcomes. Issuers and borrowers looking to generate funding through sustainable finance are generally doing so as a reflection of their corporate purpose, mission or values. The marketing process for sustainable finance can afford issuers a platform to better communicate these values to the investing community and consumers. What may often be included as a smaller section of a prospectus becomes the primary focus of a sustainability issue or initiative. Thorough representation of an organization’s ESG goals and overall mission are what will effectively attract investors.

Focusing on material ESG risks — or issues that could potentially affect the economic value of a company or investment — can be an opportunity to improve a company’s ESG profile, which is not only increasingly important to investors, but also rating agencies and customers. A more recent development in the sustainable finance ecosystem is the role ESG factors are playing in company assessments from rating agencies. For example, in January of 2019, Fitch announced that it would begin to highlight how ESG factors influence its rating decisions. S&P also announced it would include an ESG considerations section in its rating reports, and Moody’s acquired a majority stake in Vigeo Eiris, a European ESG research, data and assessment firm headquartered in Paris, France, with the goal of more deeply integrating ESG factors into its ratings.

Should this trend continue, and rating agencies consider an issuer’s track record on ESG issues when performing their holistic rating analysis, those with strong ESG fundamentals, including the ability to clearly articulate key ESG initiatives, may see additional pricing benefit from comparatively higher credit ratings.

Sustainable Finance & the Investor Perspective

The rapid growth in assets for responsible and sustainable investing strategies (RI) reflects not only investor preferences but also the evolution of investment products in the market. The general lack of standardization across RI solutions has introduced an alphabet soup of significant jargon that can lead to confusion for investors and corporate operators in navigating. At PNC, responsible investing is an umbrella term used to help our clients articulate how they would like to integrate their values or mission into their investment portfolios.

There is no one-size-fits-all approach to integrating RI in an investment portfolio, yet many investors tend to follow the “ABC’s of Responsible Investing,” with intentions to:

  • Avoid Harm by excluding or restricting certain portfolio exposures that may conflict with a set of values and/or organizational mission.
  • Benefit Stakeholders by supporting certain values or causes that assess or engage environmental, social and governance factors.
  • Contribute to Solutions by defining goals around a specific environmental or social problem and allocating capital toward that objective.

Historically, many investors, including healthcare organizations, may have avoided certain assets, such as tobacco companies or gun manufacturers, given the adverse health impact of such investments. Now they are expanding to include the “B” and the “C” as well, exploring how responsible investing can be used as an extension of their mission. In this case, boards are investing to support diversity, equity and inclusion, or even in ways that support healthcare innovations and improved outcomes.

Legacy views on responsible investing and financial performance also remain prevalent, but there is a growing body of industry and academic evidence which shows that one can achieve risk-adjusted rates of return alongside non-financial goals. Financial performance, just like with other goals-based investment strategies, can depend on a variety of factors — not just the RI or ESG ones. Still, during unprecedented market volatility throughout the global pandemic, responsible and sustainable investment strategies have performed in line, and often outperformed, their strategic benchmarks.[7] Regardless, assets continue to grow for RI strategies, while skepticism and misconceptions persist.


While assets flowing to responsible investing and sustainable finance strategies have grown significantly over the last three to five years, events of the past year have accelerated progress faster than even many experts expected. The adoption of shareholder proposals and developments in the regulatory and policy environments have also elevated the conversation in boardrooms and among investors. In the aftermath of the COVID-19 pandemic, the healthcare industry especially will be looking for ways to safeguard their business models against a potentially uncertain future, and with the evolving range and sophistication of sustainable financing options, such strategies can help companies meet this unique moment. Sustainable finance provides an array of potentially bespoke solutions for organizations looking to raise capital in pursuit of sustainable projects, and burgeoning demand for ESG securities provides a readily available market for issuers interested in financing sustainable goals at attractive rates.

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Accessible Version of Charts

Chart 1: Growth of Sustainable Finance

Year Sustainable Finance Borrowing 
2012 $31 Billion
2013 $28 Billion
2014 $65 Billion
2015 $86 Billion
2016 $146 Billion
2017 $238 Billion
2018 $309 Billion
2019 $566 Billion
2020 $758 Billion