The green bond market is seeing significant growth this year, and is on track to exceed €1 trillion in 2021, according to a report by NN Investment Partners (NN IP).
According to NN IP, with a week left to go in March, green bond issuance for the month of €48 billion has already exceeded previous record of €44 billion, set in September 2020. Several factors appear to be contributing to the string growth this year, including issues that had been postponed by the COVID-19 pandemic, as well as strong sovereign issuance as governments invest in a green recovery. Several countries are entering the green bond market for the first time this year, including Italy and the UK.
Bram Bos, lead portfolio manager green bond at NN IP, said:
“Many governments are seeking to play the green recovery. Green bond issuance can help them raise capital for implementing their infrastructure plans, while simultaneously bringing them closer to achieving their targets under the Paris Agreement.”
Market factors are also helping the green bond sector to grow, with investors willing to pay a “greenium” for the bonds, lowering borrowing costs for issuers.
“Since 2014, the Bloomberg MSCI Euro Green Bond Index has outperformed the Bloomberg Euro Aggregate Index by about 0.30% per annum. So even if green bonds trade a few basis points inside regular yield curves, they still outperform regular bonds, as well as contributing to a greener future.”
NN IP has raised its forecast for green bond issuance for the full year to €400 billion, more than double last year’s level.