| Green bonds enjoy bumper year The honeymoon period for the new Labour government continues, as we report this week, with high hopes for its commitment to climate pledges.
These include record issuances of green gilts and the implementation of covered bonds which it will use to support its transition to net zero.
According to a report from Bloomberg, 2024 has been a bumper year for green bonds worldwide with sales reaching USD356 billion; the busiest half year since the market’s inception.
The UK does not lead the field when it comes to green bond issuance – that accolade goes to France – but the country did push into third place this year.
And if Labour is successful in its plans to amend Solvency II regulations, banks and insurers will be allowed to issue covered bonds secured against green infrastructure, making it cheaper to borrow and lend as part of the green transition.
European
governments – as noted France, but also Italy and Germany - are big players in the green bond market, as is Japan which released its first green transition bonds this year worth USD12 billion.
Green bonds are an opportunity to invest in climate solutions through a high-quality credit fixed income product, which is increasingly important for institutions under pressure to meet ESG investing demands.
The huge increase in issuance for triple-A rated sovereigns is essential in helping investors, but also allows governments to meet their net zero responsibilities.
It is interesting to note, however, the absence of the United States from Bloomberg’s report.
The US government remains the only major nation not to issue green bonds, although a letter from the Treasury Borrowing Advisory Committee to the US government in April suggesting the assets warranted further study.
The likelihood of progress in the US will depend on the outcome
of this year’s election. Republican candidate Donald Trump has already made clear his contempt for climate change funding and if elected in May will likely withdraw the country from the Paris Agreement.
However, if President Joe Biden retains his place, there is a greater chance that foreign pension funds will be able to tap into US treasury debt to support their ESG strategies.
With less than six months until the US General Election, Biden trails former President Donald Trump in all of the six key states that helped seal his victory in 2020.
The future then remains uncertain in the biggest economy in the world, but for investors interested in green bonds, there remain plenty of opportunities to invest elsewhere.
Gill Wadsworth, Editor, Institutional Asset Manager
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