- The Green Bond Standard and new taxonomy will have a long-term positive impact on the integrity and transparency of the EU green bond market
- This legislation could be regarded as a catalyst for the global green bond market growth, encouraging lagging sectors such as industrials to come forward with issuance
- The green bond market will be spurred by several countries that plan to issue their inaugural green bonds in 2021 and the issuance of new Next Generation EU-Bonds
This year will see major changes that will be highly supportive of the green bond market in Europe: the European Union’s Green Bond Standard will be published, the EU will issue green bonds for an estimated amount of 225 billion euros and several governments will start issuing this asset class. As such, NN Investment Partners estimates in a press release that the global green bond market will grow by 300 billion euros in 2021 to 1 trillion.
The asset manager believes that the EU Taxonomy and the Green Bond Standard will be the first driver of the green bond market surge in 2021, stemming from the EU’s Sustainable Action Plan to finance sustainable economic growth. In its view, the standard and the finalization of the first version of the new taxonomy will have "a long-term positive impact on the integrity and transparency of the EU green bond market and will act as the blueprint for regulation in other regions", because it will:
- Further standardize and professionalize the rapidly maturing green bond market
- Raise knowledge levels on whether economic activities are environmentally friendly and how they can transition to become more sustainable
- Give investors an increasingly detailed overview of what they are investing in, enabling them to make better-informed choices
- Give issuers more guidance how to identify green assets or activities
Therefore, the firm believes that this legislation could be regarded as "a catalyst for the global green bond market growth", encouraging lagging sectors such as industrials to come forward with a green bond issuance. Currently, the market is dominated by financials, utilities and government-related issuers.
"These new regulations herald what could be a watershed decade for climate change mitigation, with Europe leading the way via its target to be carbon-neutral by 2050. ESG and green finance are really entering the mainstream. The pandemic has created a positive boost too, as a lot of countries clearly need more funding, and with green ambitions stronger than ever the green bond market will be widely viewed as a major opportunity", says Jovita Razauskaite, portfolio manager for green bonds at NN IP.
Additionally, the asset manager expects the green bond market developments will be spurred by several countries that plan to issue their inaugural green bonds in 2021, including Italy, Spain, the UK, Denmark, Ukraine and Slovenia. Also, repeated issuers such as the Netherlands, France and Germany will come back to the market with an ambition to tackle climate change. "All in all, the pipeline of government green issuances is extensive and significantly larger than in previous years", they pointed out.
Finally, the issuance of new Next Generation EU-Bonds (NGEU), of which EUR 225 billion is dedicated to environmental projects between 2021 and 2023, will significantly enlarge the supranational share of the global green bond universe. "The EU is likely to start issuing these bonds in Q2 2021 to support the national recovery and resilience plans of member countries", highlighted NN IP.