Many investors want to deploy their capital to help global needs without compromising their goals to attain financial security. According to the Chief Investment Office (CIO), the growth and development of sustainable investing vehicles means there is no longer a trade-off investors need to make.
With green bonds for example, investors can earn comparable risk-adjusted returns to traditional, like-kind fixed income vehicles , with the added benefit of a positive environmental impact. A green bond has an identical claim against an issuer as a non-green bond, the same credit rating and default risk, and therefore a similar yield and performance, albeit difference in the issues like maturity and coupon. The major types of green projects that green bond proceeds are typically directed to are renewable energy, green buildings, clean transportation, and water & wastewater management.
"After several years of strong issuance growth, green bonds as an asset class have gone from nothing to a USD 600 billion market in just over a decade, say CIO analysts Thomas Wacker and Jérôme Audran.
More recently, emerging market (EM) green bonds have been taking off. CIO believes this particular asset class is coming of age and expects it to continue to grow. With issuance of emerging market green bonds USD 500 million or more, liquidity has seen an uptick. Moreover, EM green bond yields are likely higher than those of developed market green bonds. Looking to impact, certification of funded projects' environmental impact should give investors more confidence that their capital is contributing to positive outcomes.
The green bond market broadens globally. Supranational issuers continue to contribute a large portion of green bonds, but their share is shrinking as more issuers from various countries enter the market – currently, 53 countries in total have issued green bonds . Due to growing issuance in emerging markets, and not just from China, the overall EM share has grown to over one-fifth of the market.
Christine Lagarde, President of the European Central Bank (ECB), recently indicated that the ECB may direct its corporate bond purchases towards green bonds. This could be another strong support to the asset class.
For more, see the Green bonds introduction and latest developments presentation, 9 September, 2019.
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