Green bond issuance ‘could touch $250bn this year’

AXA IM's Johann Ple predicts if central banks begin buying up green bonds, issuance could jump to $200-$250bn in 2020

Green bond issuance could reach a record high of as much as $250bn this year as central banks steer asset purchasing programs towards the transition to a low carbon environment.

AXA Investment Managers Johann Ple (pictured), portfolio manager of the AXA WF Euro Bonds and the AXA WF Global Green Bonds Funds, predicted if central banks enter and begin buying up green bonds via stimulus programmes, issuance could jump above $200bn, and even reach $250bn in 2020.

Earlier this month, Christine Lagarde, president of the European Central Bank (ECB), has promised green objectives will be at the heart of the Bank’s €2.8trn asset purchasing programme, drawing praise from the asset management industry for being at the “vanguard of efforts” to bolster demand for green bonds

In an interview with the Financial Times, Lagarde pledged to “explore every avenue available to combat climate change”, saying she will look at “greener” changes to all of the Bank’s operations to reach this objective.

AXA IM’s Ple said Lagarde’s comments could have a profound impact on the sector if QE programs are expanded. 

“If the ECB were to target Green bonds, we would certainly see the sovereign issuance dynamic strengthen, given that many European governments would likely accelerate their plans to add this source of funding to their issuance programs,” he said. 

So far this year, green bond issuance has reached $80bn – in line with the issuance seen over the same period of 2019 – with this largely issued by businesses.

Sovereigns have accounted for around $15bn of all the green bonds issued, equivalent to 20% of the total issuance year-to-date, according to AXA IM. Germany, Spain, Italy and Sweden have also highlighted their intention to start issuing such debt over the coming months. 

“On the corporate side, existing green bond issuers would definitely favour other green issuances over conventional ones, while issuers with sustainable activities that did not issue such bonds as yet would be enticed to do so,” Ple said. 

“It would help the market set new records, and we are talking about between $200bn and $250bn in total issuance over 2020.” 

Anything above $200m would surpass last year’s record high when just over $150 bonds were issued, he added.

Although the ECB did not explicitly mention it would purchase green bonds, the tone was there that his option is preferred.

“This would further strengthen the credibility of the instrument in financing the transition to a low carbon economy and combat climate change if such an institution as the ECB were to favour green bonds in its green asset programmes,” Ple said. 

On 16 July, S&P Global ratings also highlighted EU could play a huge part in the expansion of the green bond market if it doesn’t backtrack on its proposal to finance 30% of the €750bn coronavirus recovery fund through green bond issuance

According to S&P Global Ratings in the report The EU Recovery Plan Could Create Its Own Green Safe Asset, the promised additional €225bn (£204.6bn) in green bond issuance would represent an 89% increase in the size of the global green bond market compared with total issuance in 2019.

Marion Amiot, S&P Global Ratings senior economist, said: “EU green bond issuance on such a large scale would help respond to a fast-growing ESG investor base. A larger pool of green assets would also help policymakers and central banks toward their aim to green the financial system.”

Temporary blip

Earlier this month, ESG Clarity reported banks have been issuing fewer green bonds this year as a result of the coronavirus crisis, despite forecasts to the contrary, but DBRS Morningstar sees this as a temporary blip amid upward momentum

This year to the end of March, overall green bond issuance dropped 36% compared to the same period in 2019 to $66.6bn, according to DBRS Morningstar.

However, DBRS Morningstar predicts bank issuance of green bonds will begin returning to normal as soon as “in coming quarters”.

In a recent report, named Banks’ Push for Sustainable Finance Continues Despite COVID-19 Related Disruption, the firm said: “In line with the trends observed to date, this will continue to reflect both the banks’ increasing engagement in their social responsibility role as well as their desire to appeal to a broad range of investors.

“It is important for the banks to demonstrate their ability to better align part of their lending activities to support sustainability causes, especially given that an increasing number of asset managers are committing to making a positive impact on the environment through their investments.”

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Natalie Kenway

Natalie is global head of ESG insight for ESG Clarity and has been an investment journalist for 16 years. She won Editor of the Year at the Aviva Investors Sustainability Media Awards 2021, and was Winner...