Green bond issuance could jump above $200bn this year if central banks enter the market and start buying up green bonds via stimulus programs, AXA Investment Managers has said.
In 2020, so far there has been just over $80bn of green bonds issued by businesses, much of which is being used to fund the transition to a low carbon environment.
This is in line with the issuance seen over the same period in 2019 but comments this week from central banks could have a profound impact on the sector if the words are followed up by actions.
Johann Ple, Fixed Income portfolio manager at AXA Investment Managers including the AXA WF Euro Bonds and the AXA WF Global Green Bonds funds, said comments from the European Central Bank this week 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.
This year sovereigns have accounted for around $15bn of all the green bonds issued, equivalent to 20% of the total issuance year-to-date. Germany, Spain, Italy and Sweden have all 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.
Ple believes that the market is set to set new records, between $200bn and $250bn in total issuance over 2020, surpassing the current record high set last year when more than $150bn of bonds were issued.
Ple said that even though there has been no explicit mention by central banks to start purchasing green bonds, the option was clearly on the table.
"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," he said.
Ple added it was important to consider what type of bonds would be included in any such purchase programme.
"We would not expect all green bonds to be included, just because they have been self-labelled by issuers. There should be efforts made to ensure purchases are concentrated on financing projects that have clear environmental benefits, and which come from issuers that have a credible sustainable strategy."