Wells Fargo’s first sustainability bond underscores ESG’s influence

Wells Fargo is the latest big bank to issue a sustainability bond, working with diverse firms to raise $1 billion for investments in projects such as renewable energy and affordable housing.

The $1.9 trillion-asset company said that it will pay 75% of the transaction’s underwriting fees to firms owned by women, people of color and disabled veterans that are serving as bookrunners and underwriters.

“Bookrunning tends to be fairly closely held, so being able to build some of that experience for people at those firms that they can take and use to generate more business is something that I think is really valuable,” Wells Fargo Treasurer John Blinde told American Banker.

Wells Fargo is the latest of the U.S. megabanks to issue a sustainability bond.

Cooper Neill/Bloomberg

The announcement on Wednesday makes Wells Fargo the last of the U.S. megabanks to issue its first sustainability bond. Citigroup, Bank of America and JPMorgan Chase have all issued them over the past year. In March, Truist Financial in Charlotte, N.C., became the first regional bank in the U.S. to issue a sustainability bond, and it predicted other smaller companies would eventually follow suit.

The recent rise of sustainability bonds reflects the growing importance of environmental, social and governance objectives to the banking industry. Consumers and employees increasingly expect that banks will consider the broader social or environmental impacts of their financing decisions, an interest that has accelerated since the start of the COVID-19 pandemic. There is also tremendous investor interest in ESG-related investments, according to Blinde.

“People often mistakenly think about shareholder returns in isolation,” he said. “What our shareholders want and what drives the best performance for the company is when our activities align with satisfying all of our stakeholder groups, which include the communities we operate in, our employees, and our regulators.”

Roughly 65% of the investors in the bond are firms specifically focused on ESG investing, and the remainder are larger asset management firms with some ESG focus, according to John Hines, Wells Fargo’s head of investment grade debt capital markets.

Wells plans to devote half of the bond’s proceeds to renewable energy projects and 25% each to affordable housing and projects that advance socioeconomic equality, such as community development in low- and moderate-income areas.

Wells Fargo Securities was the bookrunner on the deal and was joined by five broker-dealers that have diverse ownership: Academy Securities, CastleOak Securities, Penserra Securities, Samuel A. Ramirez & Company, and Siebert Williams Shank & Co.

Those firms, plus 16 additional broker-dealers with diverse ownership that acted as underwriters, will receive a total of nearly $1.9 million in fees from the bond issuance.

“We knew them all very well, and we’ve been including these firms in our deals for a very long time,” Hines said. “The hallmark of this deal is that we really elevated their participation.”

Wells Fargo also retained BurgherGray, LLP, a minority-owned law firm, along with Faegre Drinker Biddle & Reath LLP, as the issuer’s co-counsel on the offering. Gibson, Dunn & Crutcher LLP served as underwriters’ counsel.

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