Why green bonds play a vital role in the global energy transition

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Why green bonds play a vital role in the global energy transition

Michelle Lacey

head of client group AXA Investment Managers Core Australia The Ukraine crisis is a horrendous tragedy and has brought sharply into focus the fragility of supply chains and energy security.

Given this backdrop there is a risk that policymakers delay urgent, albeit difficult, decisions on the decarbonisation of our economies. But from both a climate and political perspective, we believe we must stay the course – in fact, we need to accelerate the energy transition to alternative cleaner fuels.

FS Power50

Green bonds investment plays a critical role in this transition to a low-carbon economy.

The green bond market was born in 2007, when the first green bond was issued by the European Investment Bank (EIB). Since then, it has developed very rapidly.

The 2015 Paris Conference on Climate Change (COP21), which set in motion the transition to a low-carbon economy, was also a defining moment. A series of regulatory changes have been initiated, resulting in increased investor awareness of environmental issues. Green bonds have clearly benefited from this global commitment and the investment universe has grown remarkably.

In just 10 years, green bonds have grown close to US$1trillion in market value, with over 500 issuers. They help finance numerous initiatives, including renewable energy and pollution prevention and are attracting the attention of investors engaged in the decarbonisation of assets.

Green bonds are a potentially attractive instrument for both issuers and investors. On the one hand, the issuer attests their commitment to the energy transition. On the other hand, investors benefit from increased transparency as issuers undertake to publish an annual report setting out the evolution and impact of the financed projects. As the green bond market grows, the list of issuers, regions and sectors is becoming increasingly diversified. This growing diversification along with a good balance between private and public issuers now enables the universe to offer a potentially attractive risk and return profile, making it a credible alternative to the conventional bond universe.

Green bonds are here to stay and will help pave the way for the global energy transition.

This communication is published by AXA Investment Managers Australia Ltd (ABN 47 107 346 841 AFSL 273320) (“AXA IM Australia”) and is intended only for professional investors, sophisticated investors and wholesale clients as defined in the Corporations Act 2001 (Cth). This publication is for informational purposes only and does not constitute an offer to buy or sell any investments or services, and should not be considered as solicitation or investment, legal, or tax advice. Information contained herein is subject to change without notice. Reliance upon information in this document is at the sole discretion of the recipient. This document does not contain sufficient information to support an investment decision. Investment involves risk, and past perform is no guarantee of future returns.

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