A recent study by the Bank of International Settlements has underlined the surge in issuance of green bonds: the market capitalisation has soared to $2.9 trillion, a sixfold increase since 2018 on the back of greater regulatory support in many countries and higher demand for green assets as investors become more aware of the financial risks associated with climate change.
While the market’s capitalisation is still small relative to corporate bond markets more broadly, green bonds are no longer a niche segment.
According to the BIS, both demand and supply-side factors have driven the growth. Investors have increasingly prioritised sustainable investments, driven by a societal shift towards environmental consciousness. Institutional investors have placed greater importance on green bonds in long-term investments for reasons including the broad eligibility and diversification benefits of these bonds.
Some now have stricter environmental, social and governance mandates, some want to hedge carbon risk, and others may simply want to appear ‘green’. Adding to this, some central banks have adopted sustainability as a fourth reserve management objective in addition to the traditional goals of safety, liquidity and return.
Green bond issuance has ballooned in numerous countries. As exhibit 1 shows, advanced economies have taken the lead, with eurozone countries and the US combined accounting for about half of the outstanding amounts. China stands out among emerging economies with a significant market share. The geographic origin of issuers is reflected in the currency of outstanding green bonds: bonds in euros and US dollars are the most prevalent, but those in renminbi are also gaining ground.
Also listen to our podcast with Arnaud-Guilhem Lamy, Head of Euro Aggregate and SRI Fixed Income: Talking Heads – Have green bonds emerged from their niche?
