Will 2020 be a promising year for the green bond market?

Johann Plé, portfolio manager at AXA Investment Managers, comments on the evolution of the green bond market and the outlook for 2020.

• Issues up 76% in 2019, with 50% additional issuers to market.
• 2019 record green issuances of $145bn brings market value at $397bn.
• A huge need for green investment, and diversification of projects.
• Issuers should drive market growth in 2020.

2019 was a year of incredible growth for the green bond market. Looking at the ICE BofAML Green Bond Index, the volume of issuances reached close to USD 150 billion for the year, a 76% increase compared to 2018.

Issuers’ willingness to highlight their commitment to greener energy strengthened investors’ appetite. Regulatory requirements for more transparency in the environmental space, and numerous initiatives such as the publication of the “EU Green Bond Standards” and the proposed European green taxonomy, sparked a lot of interest in the asset class.

Beyond historical issuers, such as supranational or state entities, this dynamic has been supported by a large number of new issuers that decided to join the green bond market. A total of 77 new issuers debuted in the market in 2019, leading to a 50% increase in the number of green issuers.

With more than USD 400 billion, the green bond market progressively imposes itself as a highly reliable asset class within the bond universe.

We also hope that the rising diversification in terms of issuers, sectors or geographical areas which accompanies this growth, will be coupled with a greater diversification of funded projects. Relevant opportunities which go beyond the reduction of greenhouse gas emissions should also benefit from the dynamism of this market.

Will 2020 be another record-year?

We believe that what we have seen in 2019 is likely to continue in 2020. Sentiment has improved, macro-economic data seem to have bottomed, and technicals should remain supportive thanks to central banks. Uncertainty remains high and the long-term growth and inflation picture is fragile, which should ensure a continued support from central banks and cap the rebound in rates in the long run.

An increasing number of sovereign issuers are keen to underline their wish to meet the COP 21 in Paris’s objectives, and they are likely to be an instrumental driver of growth for the market in the coming years.

Finally, the need for green investments is tremendous due to the growing appetite for green projects. Particularly as the European commission’s action plan (published in March 2018) to face climate risks requires €180 billion of yearly investment to achieve its aims in terms of greenhouse gas emissions by 2030.

The green bond market should not only continue to have a bright future, but new proceeds could also be established to support the investment effort. Indeed, the need for change and investment is not only for the greenest companies which are able to issue green bonds. New proceeds such as “transitions bonds”, initiated by AXA IM, should also help to include more sectors and encourage them to transition and engage them in the climate change fight.