AXA Investment Managers urges local investors to jump into green bonds market

AXA Investment Managers has urged local institutional investors to step up their involvement in the $US1 trillion ($1.45 trillion) global green bond market.

Green bonds are issued to finance a range of climate-friendly projects, including those involving renewable energy, pollution prevention, energy efficiency and the preservation of biodiversity. Picture: AFP

AXA Investment Managers has urged local institutional investors to step up their involvement in the $US1 trillion ($1.45 trillion) global green bond market.

In an interview, AXA’s Hong Kong-based chief investment officer for core investment, Ecaterina Bigos, said while the local green bond sector was still small, investors should consider the rapidly growing offshore market.

“Over the past decade the green bond market has grown to become close to a $US1 trillion international market attracting the attention of investors engaged in the decarbonisation of assets,” she said. “The market saw a total of $US207bn in new issuances in the first half of the year – up by 11 per cent from last year, with 75 new issuers.”

Ms Bigos said the market was becoming increasingly sophisticated, with more private companies issuing green bonds that could offer investors higher returns, as well as the environmentally positive “halo effect” from investing in green bonds.

She said Australia was slower than other countries to issue green bonds because of its traditional reliance on fossil fuels such as coal and oil for its energy.

But she said green bonds were now becoming “part of the global narrative” for investors who were under increasing pressure to look for more environmentally sustainable investments.

Green bonds are issued to finance a range of climate-friendly projects, including those involving renewable energy, pollution prevention, energy efficiency and the preservation of biodiversity.

“The bonds enable investors to finance projects supporting a low carbon economy,” she said.

Ms Bigos said Australians should look to international investment “while they are waiting for Australian to change the regulator framework to be greener on the local ground”.

Australia’s cumulative green bond issuance is estimated to be around $16bn – less than two per cent of the global market – with most of the proceeds going into financing low carbon buildings.

The green bond market began in Europe in 2007 with the first issuance by the European Investment Bank but has since expanded into the US and Asia.

The 2015 Paris Conference on climate change – where countries agreed to work to limit global warming to less than two degrees – helped to accelerate the market.

Ms Bigos said while the market was initially focused on governments and sovereign issuers, an increasing range of private groups were issuing the bonds.

More than 600 companies and organisations have issued green bonds, with the market divided roughly equally into sovereign and corporate issuers.

She said banks had played a key role in the market with a substantial contribution now coming from corporate sectors such as real estate, telecommunications companies, cars, chemicals and consumer goods.

Ms Bigos said the yield on green bonds was now some 30 basis points higher than in conventional lending as more companies sought to issue them.

The month of June saw the highest ever spread with green finance yielding 70 basis points above conventional financing – the highest differential ever.

Ms Bigos said there were still no uniform standards for green bonds but governance was improving in the sector with work being done by the International Capital Markets Association, which has released its Green Bond Principles, and the Climate Bonds Initiative.