Of course, the costs associated with obtaining this independent verification are easier for some to shoulder than others.
Where next?
As with any new product, a few teething problems are to be expected. Despite this, the outlook for green bonds looks positive.
The majority of mainstream index providers have added green indices to their library, a sign of the market’s growing maturity. These include the Bloomberg Barclays MSCI Green Bond Index and the Standard & Poor’s Green Bond index, which both set clear guidelines on what constitutes a green bond.
There has also been a move towards impact reporting by green bond insurers on the bonds’ use of proceeds. Quantifying the climate or environmental impact is critical to helping investors measure the positive outcome of their investments.
Is 2017 the year for sovereign green bonds?
Undoubtedly, significant investment opportunities will arise as countries strive to meet their emission reduction targets under the Paris Agreement.
Poland was the first country to issue a £750m green bond, followed by France who kicked-off 2017 with a record-breaking €7bn (£6.15bn) green issuance. There has only been two sovereign green bonds issuance to date. With other countries, including the UK to follow, the predicted 2017 green bond issuance of $150bn looks well on the way to being achieved.
Over the last 12 months, we have seen the launch of a number of green bond funds in Europe. Our preference is the Allianz Green Bond fund, managed by an experienced team that ensures selected investments have a high impact on the environment while not being detrimental to society.
Damien Lardoux is portfolio manager at EQ Investors
