The challenges humanity faces have never been more important than now. We are in the middle of an environmental transition that requires significant investments both in Australia and globally.
Australian investors are keen to play a role in financing this transition, however, need to solve the challenge of investing in a way which improves the portfolios’ carbon footprint whilst still allowing them to become active investors in this industrial revolution. Green Bonds act as an efficient vehicle to reach such opportunities in terms of innovation, creation, and business models.
In Australia, we expect issuance to gain momentum in the medium to long term, and there will be compelling opportunities to implement an ESG fixed income strategy which is aligned to a 1.5°C global warming scenario. Our sustainable investment affiliate, Mirova, uses robust ESG analysis to have a better understanding of the risk/return profile of issuers, where they must adhere to regular reporting on impact measurements such as reduced energy savings, and avoiding CO2 emissions.
– Louise Watson, Managing Director: Head of Distribution, Australia & New Zealand, for Natixis Investment Managers
Interview – Bertrand Rocher, Portfolio Manager, Mirova
As the green bond market surpasses US$1 trillion, Bertrand Rocher, Portfolio Manager, Mirova discusses thoughts on the green bond market.
- Are you surprised that the Green Bond market has passed $1trillion dollars despite Covid19? Do you think the market will accelerate from here?
No, I am not surprised. This is a threshold Mirova has argued the market would reach and would exceed. In our opinion, the covid19 crisis has delayed the timing at which the threshold would be reached but it couldn’t derail the target per se.
We think that the green bond market will keep on growing rapidly in the next few years.
[Also Read: Three New Green Securities Issued in Busy Week]
We think, however, by around 2028/2029 it will grow but at a slower pace. Why so?
Because once a lot of players have adapted their business models to the ESG transition and funded the transformation through green bonds, there will be less need for issuing in this space.
- What’s the outlook for Green Bonds in 2021?
We believe the green bond market will accelerate in 2021 with the prospects of the European Union issuing a significant amount of them. A total $300bn* in green bond issuances for 2021 would not come as a major surprise to us.
- Mirova has been investing in Green Bonds since the inception of the market, what are the biggest changes you have seen?
There are a combination of elements that have driven the market over the past decade, for example, higher volumes, greater diversification in terms of industries and geographies. Better ratings and a sounder framework have driven this niche area into a fully-fledged market in its own right.
Only a year ago, this achievement would have only been anticipated by a few market participants. In fact, we see that investors and issuers are understanding, that green bonds address a real issue. By investing in a green bond, the capital raised is used for projects that can be identified as having a clear purpose and are used to benefit all economic players.
- Are there some companies that you are surprised haven’t issued a green bond?
If we had been asked this question six months ago, we would have answered that we were puzzled by the lack of senior unsecured public green bonds from light vehicle manufacturers. However, in September, Daimler, Volkswagen, and Volvo Cars issued a combined €3.5bn in green bonds. This is a real milestone in the development of this market.
To some extent, the fact that Renault and Toyota – both having designed original, technical solutions to produce and offer more environment-friendly vehicles – were not the very first auto OEM to issue unsecured green bonds remains a bit surprising. Paradoxically, if you want surprises in this market, wait to see what happens in the next few years. We have seen business models making spectacular U-turns and as a consequence, the least performing industries often command the most ambitious transformation plans.
- Is Europe still a leader in Green Bonds compared to other parts of the globe?
Depends on the definition of what is a leader and what are green bonds, but overall, what is important is to understand that Chinese and US issuers are closing the gap on their European peers. They are catching up with the latter not only as far as volumes are concerned, but also regarding the quality of the frameworks of the green bonds they issue.
At Mirova, we often praise the advantages of co-operation vs. wild competition, but if issuers of all those regions across the globe could maintain a sort of rivalry in terms of green bond issuance, then the subsequent impact for the whole planet is a welcome result.
Mirova is an investment manager dedicated to responsible investment. Through a conviction-driven investment approach, Mirova’s goal is to combine value creation over the long term with sustainable development. Mirova’s talents have been pioneers in many areas of sustainable finance. Their ambition is to keep innovating to propose the most impactful solutions to their clients.