Monday 06/04/2020

Top Header


Outlook 2018: The eldorado of green bonds (III)

Responsible Investment Strategist

Climate change has undeniably influenced ESG themes in the last few years. This trend will continue in the future. Green issues are inextricably linked to this topic, and remain very popular. Indeed, various states issued green bonds in 2017, including France and Poland, and even Belgium announced at the end of that year that it would issue green bonds.

Green bonds have been around for about ten years. Now is a good time to take stock. Just like responsible investment, green bonds, which used to be a niche segment, have become a genuine driver of change on the bond markets. Although its market size (close to USD 315.4bn at the end of 2017) still remains limited compared to global fixed income markets, the number of green bonds is on the rise. It shows the appetite of - mainly institutional - investors for this asset class.

Green bonds live up to a number of criteria: on the one hand, the eligibility criteria which will be financed by the issue and on the other hand, the progress report on the projects which have been financed by the issue. The Green Bond Principles, which were adopted in 2014, aim to provide a clear and comprehensive framework on green bonds. They have contributed to their growth.

Moreover, the High-Level Expert Group on Sustainable Finance, which was appointed to the European Commission to look into responsible finance matters, should also set up a reference framework for green issues.

As per 31 October 2017, total issuance of that year exceeded USD 100bn, which is slightly higher than the USD 93bn that was reached in 2016. It is the fifth consecutive year of record market issuance. An estimated USD 110 to 135bn will be issued in 20181. Although the market was dominated by the World Bank for a long time, which acted as a quasi-monopolistic issuer, it has become more diversified in terms of private issuers, industries and maturities since 2013.


States are becoming increasingly interested in this type of issue. As a matter of fact, Poland has been the first country to issue a green government bond. France rapidly followed suit, and its 22-year bond was highly successful as it raised a total of EUR 7bn. Finally, thanks to Fiji chairing the recent edition of the COP 23, the Fiji Islands have also issued a green bond of nearly USD 50bn. This means it has become the first emerging country to issue such a bond. Taking into account the needs in terms of adaptation to and mitigation of climate change, the green bond market of emerging economies is poised to grow rapidly.


Insurance companies and other long-term institutional investors are fairly fond of green bonds, as their investment profile requires them to invest massively in fixed income products to cover their liabilities. Impact investing is also part of their responsible investment strategy. Moreover, the regulation, in particular article 173 of the French energy transition law, tends to direct asset holders to this type of investments, as it enables them to demonstrate a clear contribution to a low-carbon economy. Finally, the enthusiasm about the Sustainable Development Goals will also support the market for green bonds, which will doubtlessly continue to be successful in the coming years.

Next week: Tax evasion.


1. Bank of America Merrill Lynch.