The Hague-based NN Investment Partners estimates that the global green bond market will grow to 1 trillion euros (US$1.22 trillion) in 2021.
Driving the surge in the market is the EU Taxonomy and EU Green Bond Standard, which stems from the European Union’s Sustainable Action Plan to finance sustainable economic growth.
NN IP says the finalization of the first version of the EU Taxonomy and EU Green Bond Standard will have a long-term positive impact on the integrity and transparency of the EU green bond market and will act as the blueprint for regulation in other regions.
The new regulations will further standardize and professionalize the rapidly maturing green bond market; raise knowledge levels on whether economic activities are environmentally friendly and how they can transition to become more sustainable; give investors an increasingly detailed overview of what they are investing in, enabling them to make better-informed choices; and give issuers more guidance on how to identify green assets or activities.
Jovita Razauskaite, portfolio manager of green bond at NN IP, comments: “These new regulations herald what could be a watershed decade for climate change mitigation, with Europe leading the way via its target to be carbon-neutral by 2050. ESG and green finance are really entering the mainstream. The pandemic has created a positive boost too, as a lot of countries clearly need more funding, and with green ambitions stronger than ever the green bond market will be widely viewed as a major opportunity.”
The asset manager also notes that several countries plan to issue their inaugural green bonds in 2021, including Italy, Spain, the United Kingdom, Denmark, Ukraine and Slovenia.
On top of that, repeat issuers such as the Netherlands, France and Germany will come back to the market with an ambition to tackle climate change.
Moreover, the issuance of new Next Generation EU-Bonds (NGEU), of which 225 billion euros is dedicated to environmental projects between 2021 and 2023, will significantly enlarge the supranational share of the global green bond universe, NN IP says.
The EU is likely to start issuing these bonds in the second quarter of 2021 to support the national recovery and resilience plans of member countries.