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The green bond market growth won’t be stopped
VIEWPOINT – Green bonds will continue to thrive because there is no comparable instrument with the potential to effectively address multiple rising demands for environmental results.
Lorna Greene 10 Jul 2017

US President Donald Trump’s decision to withdraw the country from the Paris climate accord may be a setback for the global effort to address climate change. But it will have little impact on the growth of green bonds. That is, bonds where proceeds are earmarked for projects with environmental benefits. That’s because the green bond market is being fuelled by powerful, broader factors that will ensure the asset class remains vibrant.

The global green bond market is on track to nearly double this year, to US$150 billion. While the US is one of the largest issuers, green bond growth is increasingly driven by emerging markets and led by China, which accounted for almost 40% of global issuance last year, according to the Climate Bonds Initiative.

Governments in Europe and Asia-Pacific are also at the forefront of growing the green bond sector and creating policies to develop the kind of sustainable infrastructure that green bonds are designed to fund. China has made green infrastructure a focus of its most recent five-year plan. Australia has been held up as a model of international green bond best practice by the Climate Bonds Initiative, while the Monetary Authority of Singapore recently launched a grant scheme to help companies offset the costs associated with green bond issuance.

More investors targetting sustainability
Importantly, the green bond market will also find ample support on the demand side. Appetite for infrastructure-related bonds is strong and for many investors, choosing sustainable investments is no longer optional. More institutions are contending with sustainability mandates; as the Climate Bonds Initiative has pointed out, investors with US$45 trillion worth of assets under management have made public climate and responsible investment commitments.


Source: NAB/Finance Asia Asian bond investor survey

High net worth investors, too, are increasingly investing with purpose as well as returns in mind, as noted in a recent Lombard Odier report. Given the soaring demand for infrastructure and investments that are both sustainable and capable of generating solid returns, green bond issuances are frequently oversubscribed, with demand set to outstrip supply for some time yet.

The green bond market is therefore likely to become an even more important source of funding for issuers across the region, especially in Australia. The maturity of the local investor base means green credentials will be increasingly stressed. And Asian investors’ growing familiarity with the format – helped by a string of dollar deals from Asian corporates – will ensure offshore bidding stays strong.

The early success of green bonds and growing emphasis on sustainability is already paving the way for innovative emerging asset classes like social bonds, in which proceeds are used to fund social outcomes like gender equality or affordable housing. Green bonds, in other words, are part of a wider sustainable investment journey that is just getting started. Regardless of short-term political ripples, they will continue to thrive because there is no comparable instrument with the potential to effectively address multiple rising demands for environmental results, greener infrastructure, sustainable investments and healthy returns.

Lorna Greene is director, origination & debt syndicate, Asia investment grade origination, National Australia Bank.

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