Are Green Bonds a New Gateway for Active Managers? | ETF Trends

Sustainable bonds are a growing part of the expansive fixed income landscape. With more investors prioritizing sustainable investing, this area could bring significant opportunity for active managers.

“Another year, another record for the sustainable debt market. Companies and governments raised nearly three-quarters of a trillion dollars of sustainable debt in 2020, beating the previous record, set a year earlier, by more than $160 billion,” reports Nathaniel Bullard for Bloomberg.

Green bonds are debt securities issued to finance projects that promote climate change mitigation or an adaptation or other environmental sustainability purposes. The new breed of green bonds gained momentum in the global market ever since the European Investment Bank issued the first green bond in 2007. True to that heritage, green bonds are perking up in Europe.

The Green Bond Market Is Taking Off

Investors asked and are now receiving — demand for environmental, social, and governance (ESG) fixed income was only getting stronger as the space began to gain steam. Now green bonds are beginning to sprout everywhere.

“A half-decade ago, the notion of sustainable debt hardly existed, in the sense that investor focus was almost entirely on one instrument: activity-based green bonds. An activity-based bond is what a company or government sells to raise funds for a specific project, mostly building renewable energy assets,” adds Bloomberg.

Investors, including institutions, are clamoring for green bonds. Private industries are also joining the fray, offering their own green bond issues that address investors’ need for environmentally friendly initiatives.

Data confirm sustainable bonds are growing as an asset class.

“Last year, more than $300 billion of green bonds were issued. That’s only a 13% increase from 2019, but green bonds are a relatively mature market, and this (relatively) mature growth rate isn’t surprising. Sustainability-linked bonds, the smallest subset of last year’s issuance, grew 100%, to $11 billion. That leaves sustainability bonds, which nearly doubled to $69 billion,” concludes Bloomberg.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.