Only five years ago green bonds were conceptual. There is now a significant increase in focus around green investments. This is important because it makes more capital available to fund the transitions required to support social and environmental outcomes.
As interest and demand has increased, financial institutions are keen to take advantage of a competitive position of being one of the first to market. However, they are recognizing the need to build their capability in this space in order to issue green bonds in the right way and have the right infrastructure in place to manage and monitor these types of assets. This means demand for green bonds is currently outstripping supply as investors look to diversify their portfolios.
For those investors who do believe in climate change, managing long term climate risks and seeing social and environmental outcomes is important, while maintaining financial returns. With green bonds delivering similar returns to vanilla bonds while creating a positive impact in the real world, it is no surprise that demand is increasing.
What is critical for the green bond market as it starts to expand is that there will need to be trust in the market. Investors will need to have confidence in what they are investing in. This is where EY can help — our assurance work around green bonds can help provide integrity and trust to capital markets.
The future for green bonds is positive and we expect to see both growth and an expansion in the types of products to drive capital growth.