Record green bond issuance on the cards

Green bond issuance is predicted to hit US$600 billion this year.

That's according to AXA Investment Managers, which said the milestone will be achieved on the back of supportive regulation, evolving market dynamics, and increased investor demand.

In 2024, there was US$447 billion in issuance globally, which saw the green, social and sustainability bond market surpass that of 2023 by 17%.

"The unprecedented growth in green bond issuance is a testament to the collective commitment of global markets towards a sustainable future. The current trajectory reflects a growing emphasis on transparency as well as the drive to direct capital towards the net-zero transition," AXA fixed income portfolio manager Johann Ple said.

Emerging markets' participation has dropped by 10.4% to 6.5%, however AXA said this could reflect higher rates of participation in Europe and Asia. Meantime, US issuer share fell to 8.5%, contributing to a significant decline in USD-denominated green bonds, it said.

This trend aligns with the general anti-ESG attitude that has taken over much of the US.

"Despite the current ESG backlash in the US, sustainable investments continue to grow boosted by the Inflation Reduction Act. However, rather than issuing explicitly labelled green bonds, many US corporates are choosing to incorporate sustainability objectives into their broader financing strategies," Ple said.

In Australia, great strides are being made in the green bond market, he said. And this is only expected to continue as investors and businesses support the government's net-zero endeavours.

"Australian issuers are becoming more active, using sustainability and green bonds, with a steadily growing number of issuers and an increasing AUD to Australian issuances ratio," Ple said.

Ple also expects to see big things from China in this area, following the launch earlier this year of its first sovereign green bond.

"As sustainable finance continues to mature, especially with strengthening regulatory frameworks and government support across Asia, we expect the region to become a key engine of growth following Europe," he said.