Launch of a new bond offering, linked to sustainability, by Border to Coast Pensions Partnership
The global green bond market is on an upward trajectory, with projections suggesting it will reach approximately USD 673 billion by 2025 and further grow to USD 814 billion by 2030, according to industry reports. Europe, in particular, is playing a pivotal role in this growth.
The region's leadership in the green bond market is evident through sovereign net-zero commitments, which have given Europe an early advantage in sovereign green bond issuance. This trend is expected to drive medium-term growth over the next 2-4 years.
Regulatory support is another key factor fueling Europe's green bond market growth. The introduction of the EU Green Bond Standard, for instance, is a critical short-term driver, spurring corporate green bond supply primarily in Europe, with some global spillover effects.
Investor demand dynamics in Europe also contribute to the market's growth. While demand for green bonds remains strong, investors in the Europe, Middle East, and Africa (EMEA) region are demonstrating caution about green premiums, as EMEA green bonds are currently trading at a spread roughly 2.4 basis points wider than conventional bonds. This indicates that investors in the region demand higher yields instead of tolerating green premiums, as observed in other regions.
Despite this nuanced market behavior, the outlook for Europe's green and sustainability-linked bond market remains positive, with short- to medium-term growth driven by policy and demand.
In a significant development, the Border to Coast LGPS pool, headquartered in Leeds, is planning to launch a new sustainability-linked bond fund next year. The fund aims to provide access to green, social, and sustainability debt for its partner funds, although details about its management are still under consideration.
The green or sustainability-linked market is predominantly controlled by European issuers, with Europe on track to be the largest green bond issuer worldwide. According to World Bank data, over $1 trillion in sustainability-linked debt has been issued as of last year, despite a slight decrease in 2021.
As the green bond market continues to evolve, the need for transparency and credible issuer-level sustainability disclosures becomes increasingly important. The Border to Coast LGPS pool's new sustainability-linked bond fund will focus on these aspects, with a responsible investment manager to be hired to help shape and deliver the pool's approach to verification and impact reporting for green, social, and sustainability bonds.
The sustainability-linked bond market, while showing signs of recovery, still faces challenges. However, with regulatory support, increased corporate adoption, and cautious investors, the market is poised for continued growth and development.
Finance and business are key elements driving the growth of Europe's green and sustainability-linked bond market. Regulatory support, such as the EU Green Bond Standard, spurs corporate green bond supply primarily in Europe, while investor demand dynamics, with EMEA investors demanding higher yields, contribute to the market's expansion.
