AXA IM: Green bonds present attractive opportunity for diversification
The green bond market’s momentum is showing no signs of slowing – it is becoming increasingly standardised, transparent and credible, which is in turn driving an ever-rising demand for the asset class, writes Johann Plé, Portfolio Manager at AXA IM.
“Green bond regulation is continuing to develop as the market evolves and grows. The new European Green Bond Standard, applied from December 2024, sets out best practice for issuers in the asset class.
It requires issuers to allocate at least 85% of a bond’s net proceeds to activities defined as ‘green’ under the EU Taxonomy. The label is voluntary, but when issuers adopt the standard, it will give investors greater transparency and certainty, adding to the credibility of the green bond market.
A recent study from the Bank of International Settlements highlighted that corporate green bond issuance is often accompanied by a decrease in carbon emissions by the issuer. It also found that the green bond market has expanded most in countries with stricter emissions targets. These findings highlight a shared ambition and commitment among global firms to enhance their environmental performance, further reinforcing the reliability of green bonds as instruments that support the transition to net zero.
The green bond market has enjoyed strong growth and performance over the past decade and there are plenty of reasons to be optimistic about the future. There is a huge need for investment in the transition to a low-carbon economy, and green bonds are already an effective tool to support issuers in this effort.
Thanks to this structural support, as well as the asset class’s growth, liquidity and diversity, we believe green bonds are a potentially attractive way to gain exposure to the broader bond market through a diversified exposure that can potentially enhance return prospects when coupled with flexibility, while delivering a positive and measurable impact.”
