A record sum is expected to be raised under the green bond banner this year, but is it doomed to remain a niche market due to a lack of transparency?
Green is the new black. Momentum has been building in the green bond market during the past few years and in 2018 a record amount is expected to be raised. Estimates by rating agency Moody’s put global issuance at $250bn (￡181.5bn) this year, beating the $155.5bn (￡112.9bn) recorded in 2017.
The early signs are promising. Around $30bn (￡21.8bn) worth of green bonds were issued globally in the opening three months of 2018, a 9.4% rise year-on-year, according to law firm Linklaters. While there is a long way to go before estimates for the year are achieved, an almost 10% improvement is a positive start.
So the market for issuing debt to fund projects that are intended to have a positive environmental impact appears to be enjoying its moment in the sun. But is this the sign of a longer-term trend or is it just a passing fad?
A DIRECT APPROACH
Management of equity portfolios, whether through engagement or screening out certain stocks, has been the traditional route to supporting the transition to a low carbon world. There are some investors, however, who want exposure in their debt portfolio too, which has put green bonds on their radar.
“ESG integration is not limited to equities, but across fixed income it is more challenging to find opportunities that have a more direct impact,” Tim Manuel, Aon’s UK head of responsible investment, says. “This is why green bonds have had the attention and the appetite from investors.”