The market for green bonds could surpass US$1 trillion early in the first half of 2021.
Green bonds are booming again after a brief period in early summer when their issuance was overtaken by a surge in Covid-19-inspired social and sustainable investments. Now green bonds are seen as key to pandemic recovery efforts. The EU alone is considering issuing about €225 billion of green bonds over the next five years to fund part of the bloc’s Covid-19 recovery.
With volume already surpassing US$900 billion and new issuances for 2021 predicted to reach as much as US$300 billion, analysts at UBS Global Wealth Management say the market for green bonds could surpass US$1 trillion early in the first half.
“There continues to be a steady flow of new issuers entering the green bond market,” a UBS note says. “Most notably, several major car makers and communications companies recently issued inaugural green bonds. We believe bonds from industries currently underrepresented in the green bond market enjoy particular demand as investors aim to diversify their portfolios.”
Since their introduction in 2007, green bonds have been embraced by investors as a way to put their capital to work for a transition to a cleaner economy while benefiting from the financial features of a conventional debt instrument. That dovetails with calls from some quarters to design a green and resilient post-pandemic world.
Some financial insiders insist that more robust incentives are necessary to support an expanding market of bonds informed by environmental, social, and governance (ESG) standards. HSBC Global Asset Management, for one, argues that governments could further facilitate green bond uptake by attaching “significant strings” to financial support extended to companies.
The green bond market itself does not escape criticism, according to HSBC. Despite the introduction in 2014 of the International Capital Market Association’s Green Bond Principles, charges of “greenwashing”—whereby poor-quality or non-green projects get a green label for marketing and PR purposes—haven’t dwindled.