Green bond issuance has developed healthy momentum over recent years. The sector now represents a liquid and diversified market which provides an effective tool for investors to meet a range of objectives, including impact and financial return.
Described as liquid impact investing, green bonds are regular bonds whose proceeds are earmarked for clearly specified projects – with high levels of transparency in reporting – and which create real and sustainable environmental impact.
With a history spanning about thirteen years, the market in green bonds currently represents about EUR 700 billion in assets, with a record EUR 255 billion in new issuance in 2019. The lively primary market in green bonds – which has seen strong growth particularly in recent years – now has issuance from a diversified set of institutions, across the corporate, government, government-related and multi-lateral sectors. The secondary market has been functioning well, with green bonds priced close to their non-green peers.
The increase in issuance volumes in recent years has made it possible to build sizeable portfolios in this market. The financial market crisis which began in March has affected this market, too, but issuers have started returning to the primary market. In parallel with a recovery in global markets, the many new green initiatives on the agenda and a growing environmental awareness within society, we expect continued strong growth for the green bond market in the years to come.
The origins of green bonds date back to 2007 when the EIB launched its first Climate Awareness Bond. The World Bank issued its inaugural green bond in 2008. These were followed by a small but growing stream of issues from government-related entities and local authorities.
The market really started in earnest after the launch of the Green Bond Principles in 2014. The establishment of these principles helped create more transparency for investors and clarified requirements for issuers. This gave a strong impulse to both the volume and diversity of issuers.
The green bond market experienced rapid growth between 2015 and 2017, with a tilt towards specific segments. Institutions such as the EIB, IBRD and KfW, which by that stage had become relatively established green bond names, expanded issuance, but a substantial part of the growth – particularly in 2016 and early 2017 – came from Chinese names, such as the Shanghai Pudong Development Bank and ICBC. US issuers took over the lead in 2017, with sizeable green bond issuance by US municipalities to finance local transportation and water projects, and by Fannie Mae to finance sustainable housing.
This period also marked the start of two further key trends in this market: a strong increase in corporate green issuance and the launch of the first sovereign green bonds. Given the nature of their activities, it seems logical that utility companies, banks, automotive and real estate companies dominated corporate issuance.
Sovereign green bond issuance started in December 2016, but really took off in early 2017 when France launched its EUR 14.8 billion green bond, and immediately became the largest green bond issuer that year. This paved the way for sizeable sovereign green bond issuance in 2018-2019 from Belgium, the Netherlands and Ireland, as well as several emerging sovereigns, such as Indonesia and Nigeria. In early 2020, Chile was the largest issuer. The introduction of sizeable sovereign issuance brought further portfolio diversification opportunities to the green bond market.
Green bond issuance reached a record high in 2019. A total of USD 255 billion in green bonds was issued, according to data from the Climate Bond Initiative, up 49% from 2018 issuance. The EU was the largest market for green bond issuance, at USD 107 billion. Use of proceeds from 2019 issuance are allocated mainly to renewable energy (32%), green buildings (29%) and transportation (20%).
With the significant increase in climate awareness and with the emergence of new initiatives to combat climate change, it is no surprise that such an important vehicle to finance these initiatives has experienced rapid growth, too.
Although the start of the year was more difficult due to Covid-19, 2020 could be another record year for green bonds issuance. Inaugural green issuance is expected from amongst others the governments of Germany, Italy, Spain and Sweden.
The political agreement on the EU Taxonomy in December 2019, which defines activities that can be regarded as environmentally friendly, will also help in further developing the green bond market. It will contribute to the development of a minimum standard for the market. It will also help in setting rules for financing decarbonization activities in industries where lower carbon, but no low carbon alternatives are available.
Over the past few years the green bond market has grown from a small niche market to a liquid and diversified market. Although many buy-and-hold investors are active in the green bond market, the secondary market has been functioning well, with green bonds priced close to their non-green peers. The increase in issuance volumes has made it possible to build sizeable portfolios in this market. With many new green initiatives on the agenda and a growing environmental awareness within society, we expect continued strong growth for the green bond market in the years to come.
Robeco’s investments in green bonds have kept track with the development of the market. Inaugural investments were made in 2013, and initially these were small. Allocations to green bonds increased significantly during 2014-2019, as issuance volumes rose and the profile of issuers became more diversified. Green, social and sustainable bond investments are now an integral part of most Robeco fixed income funds.
As of the end of March 2020, Robeco’s investments in green bonds totaled approximately EUR 1.7 billion.
Robeco has a five-step framework for determining if a corporate or a sovereign bond is green. The green bond has to pass all five steps in order to be considered eligible as a green bond investment. The decision to include the eligible green bond in the portfolio is ultimately taken by the portfolio manager, based on the regular investment process of the portfolio.
The opportunities presented by green bonds remain attractive, in spite of the recent global financial market turmoil. Green bond issuance has reached a healthy momentum over recent years, and the market now provides an effective tool for investors to meet a range of objectives, including impact, diversification and financial return.
The contents of this document have not been reviewed by the Securities and Futures Commission ("SFC") in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the SFC in Hong Kong.
This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing
This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice. Please refer to the relevant offering documents for details including the risk factors before making any investment decisions.
The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.
Please read this information carefully.
This website is prepared and issued by Robeco Hong Kong Limited ("Robeco"), which is a corporation licensed by the Securities and Futures Commission in Hong Kong to engage in Type 1 (dealing in securities); Type 4 (advising in securities) and Type 9 (asset management) regulated activities. The Company does not hold client assets and is subject to the licensing condition that it shall seek the SFC’s prior approval before extending services at retail level. This website has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.
2. Important risk disclosures
2. Important risk disclosures Robeco Capital Growth Funds (“the Funds”) are distinguished by their respective specific investment policies or any other specific features. Please read carefully for the risks of the Funds:
3. Local legal and sales restrictions
The information contained in the Website is being provided for information purposes.
Neither information nor any opinion expressed on the Website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. The information contained in the Website does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, most recent annual and semi-annual reports, which can be all be obtained free of charge at www.robeco.com/hk/en and at the Robeco Hong Kong office.
4. Use of the Website
The information is based on certain assumptions, information and conditions applicable at a certain time and may be subject to change at any time without notice. Robeco aims to provide accurate, complete and up-to-date information, obtained from sources of information believed to be reliable. Persons accessing the Website are responsible for their choice and use of the information.
5. Investment performance
No assurance can be given that the investment objective of any investment products will be achieved. No representation or promise as to the performance of any investment products or the return on an investment is made. The value of your investments may fluctuate. The value of the assets of Robeco investment products may also fluctuate as a result of the investment policy and/or the developments on the financial markets. Results obtained in the past are no guarantee for the future. Past performance, projection, or forecast included in this Website should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Fund performance figures are based on the month-end trading prices and are calculated on a total return basis with dividends reinvested. Return figures versus the benchmark show the investment management result before management and/or performance fees; the fund returns are with dividends reinvested and based on net asset values with prices and exchange rates of the valuation moment of the benchmark.
Investments involve risks. Past performance is not a guide to future performance. Potential investors should read the terms and conditions contained in the relevant offering documents and in particular the investment policies and the risk factors before any investment decision is made. Investors should ensure they fully understand the risks associated with the fund and should also consider their own investment objective and risk tolerance level. Investors are reminded that the value and income (if any) from shares of the fund may be volatile and could change substantially within a short period of time, and investors may not get back the amount they have invested in the fund. If in doubt, please seek independent financial and professional advice.
6. Third party websites
This website includes material from third parties or links to websites maintained by third parties some of which is supplied by companies that are not affiliated to Robeco. Following links to any other off-site pages or websites of third parties shall be at the own risk of the person following such link. Robeco has not reviewed any of the websites linked to or referred to by the Website and does not endorse or accept any responsibility for their content nor the products, services or other items offered through them. Robeco shall have no liability for any losses or damages arising from the use of or reliance on the information contained on websites of third parties, including, without limitation, any loss of profit or any other direct or indirect damage. Third party off-site pages or websites are provided for informational purposes only.
7. Limitation of liability
Robeco as well as (possible) other suppliers of information to the Website accept no responsibility for the contents of the Website or the information or recommendations contained herein, which moreover may be changed without notice.
Robeco assumes no responsibility for ensuring, and makes no warranty, that the functioning of the Website will be uninterrupted or error-free. Robeco assumes no responsibility for the consequences of e-mail messages regarding a Robeco (transaction) service, which either cannot be received or sent, are damaged, received or sent incorrectly, or not received or sent on time.
Neither will Robeco be liable for any loss or damage that may result from access to and use of the Website.
8. Intellectual property
All copyrights, patents, intellectual and other property, and licenses regarding the information on the Website are held and obtained by Robeco. These rights will not be passed to persons accessing this information.
10. Applicable law
The Website shall be governed by and construed in accordance with the laws of Hong Kong. All disputes arising out of or in connection with the Website shall be submitted to the exclusive jurisdiction of the courts of Hong Kong.