Johann Ple

AXA Investment Managers forecasts that green bond issuance will soar to US$600 billion in 2025, driven by supportive regulation, evolving market dynamics, and surging investor demand for credible ESG-aligned investments.

The spike in the global issuance of green bonds marks an important commitment to improved efforts in striving for sustainable public and private practices.

“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,” says Johann Ple, Fixed Income Portfolio Manager at AXA Investment Managers.

“The green bond market has shown increasing momentum in recent years, breaking new records with $447 billion in issuance in 2024. This dynamic has propelled the Green, Social, and Sustainability (GSS) bond market to surpass 2023 by 17%.”

The euro remains the dominant currency in the space, accounting for 60% of new green bond issuances.

While participation from emerging markets has dipped from 10.4% to 6.5%, this could reflect faster growth in other regions, particularly in Europe and Asia. Similarly, the US issuer share has fallen to 8.5%, contributing to a marked decline in USD-denominated green bonds.

Navigating the US ESG backlash

“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,” says Johann Ple.

This dynamic has alleviated the past scarcity of issuance the market had experienced in some segments, creating a green premium, or ‘greenium’. However, as the green bond market has expanded significantly, this premium has largely dissipated. Today greeniums tend to emerge more on a case-by-case basis rather than across sectors, reinforcing the value of an active and selective approach to green bond investing.

China’s first sovereign green bond

A major development this year was the launch of China’s first sovereign green bond, marking the beginning of a broader surge in Asian issuance.

“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,” Ple explains.

Green bonds in modern portfolios

Over the past eight years, the green bond sector has outperformed[1] the global aggregate universe six times out of eight due to a good mix of credit and sovereign debt. The trend points to an asset class that is fast shedding its niche status and offering investors broad diversification.

Initially, corporate issuances were concentrated in utilities and financials, but they have progressively broadened to include real estate, telecommunications, and transportation.

Blind spots in sustainable finance

While green bonds have aligned more closely with conventional bonds in terms of duration and ratings, key differences remain. The market is more concentrated in euro and dollar currencies and has greater exposure to credit, resulting in tracking errors of up to 200 basis points versus global aggregate benchmarks.

Ple adds, “We believe there is a simple way to allocate to green bonds while addressing this dilemma. We’ve found that by combining green bonds with US Treasuries improves performance correlation and reduces tracking error versus a global aggregate universe.”

This offers a liquid, low-cost way to bridge the gap with conventional markets.

The future of green bonds

Australia is making significant strides in the green bond market.

“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,” notes Johann Ple.

This development is expected to attract more green capital to Australia and support the government’s 2050 net zero commitment.

Green bonds are among the most effective tools for supporting the transition to a low-carbon economy, an essential factor behind the sector’s rapid growth.

“Whether investors choose a tailored strategy or a blended approach, they can tap into the green bond universe through solutions that are both innovative and accessible,” concludes Johann Ple.

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Amanda O’Toole

AXA Investment Managers (AXA IM), with A$1.38trn in assets under management as at end of 2021 globally, has announced that it has unveiled two new funds in Australia – the AXA IM Global Green Bond Fund and AXA IM Clean Economy Equity Fund.

According to the global asset manager, Australian wholesale investors are building sustainable portfolios and are seeking more quality and actively managed responsible offerings, particularly in the fixed income space.

The two funds complement AXA IM’s flagship Sustainable Equity Fund, which was launched in Australia in 2014, and further strengthen its responsible investment offering in support of the global transition to a low carbon economy.

AXA IM Global Green Bond Fund

Having had a dedicated green bond strategy since 2015, AXA IM is a green bond pioneer, managing over A$20bn worth of green bonds as at end of 2021.  As green bonds have increasingly attracted the attention of investors engaged in the decarbonisation of their assets, the AXA IM Global Green Bond Fund seeks income and growth for investors from an actively managed portfolio of green bonds through a master-feeder structure^[1].

Using a proprietary green bond framework, AXA IM seeks to invests in eligible green bonds with issuers that have an overall sustainability strategy consistent and aligned with green bond projects. These projects have the objective of demonstrating a positive environmental impact by financing the energy and ecology transition.

The underlying fund aims to support a number of the UN’s Sustainable Development Goals by investing across four main sub themes – low carbon transport, smart energy, green buildings and sustainable ecosystem.

“As the battle against climate change drives solid growth in the worldwide green bond market, the universe is increasingly well diversified across regions, sectors and industries and now makes for a credible alternative to the conventional bond universe,” said Portfolio Manager, Johann Ple. “We expect the green bond market to grow in excess of EUR600bn this year and as it does, become even more attractive to investors.” Mr Ple added.

AXA IM Clean Economy Equity Fund

Likewise, through a master-feeder structure, the AXA IM Clean Economy Equity Fund has a dual objective of delivering long-term investment growth and a positive and measurable impact on the environment.

The fund is an actively managed portfolio of high-quality, growth-oriented companies operating in key investment areas impacted by the finite amount of natural resources^[2].

“The underlying fund invests in public-listed companies that have high potential for growth as they support, through innovative solutions, the drive towards decarbonisation and resource optimisation, as well as the decrease in waste and pollution,” said Portfolio Manager, Amanda O’Toole.

Also aiming to support a number of environmental UN’s Sustainable Development Goals, the underlying fund provides a high conviction portfolio of typically 40-60 listed equity and equity-related securities of companies in the clean economy. These global companies are largely focussed on energy transition and resource optimisation such as low carbon transport, renewable energies, responsible agriculture, food, water protection, natural resource preservation and recycling and waste reduction.

She added, as concerns over the sustainability of human civilisation on earth deepen, investors are demanding more of companies to respond to the need for change. “We believe businesses that continue to innovate and invest in solutions and enabling technology to present the best growth opportunity and potential to deliver positive impact towards our transition to a net zero world”, said Ms O’Toole.

Market seeking diversification in RI

“Since introducing one of the first responsible investing options for wholesale investors in Australia with the Sustainable Equity Fund in 2014, we have seen incredible growth in responsible investing in this country.  Investors are increasingly seeking to expand their portfolios beyond core equities with ESG integration by taking advantage of the growing diversification and liquidity in the global green bond market,” said Michelle Lacey, Head of Client Group, AXA IM Core, Australia.

“These two fund launches underpin our commitment to invest responsibly and provide Australian investors the potential to deliver more sustainable financial returns over the long-term based on our long-established responsible investing expertise”, Ms Lacey said.

“We expect the global economy will move to a more sustainable and equitable model over the coming years, and we want to be an active partner for Australian clients as that transition takes place. It’s important to consider how we, as responsible investors, can promote positive change for the present and the future of our people and planet,” she added.

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[1] The AXA IM Global Green Bond Fund substantially invests in the Master Fund (AXA WF ACT Green Bonds, an open-ended Luxembourg fund), which invests a minimum 75% of its net assets in bonds financing environmental projects (Green Bonds).
[2] The AXA IM Clean Economy Equity Fund substantially invests in the Master Fund (AXA WF ACT Clean Economy, an open-ended Luxembourg fund) which invests at least two thirds of net assets in equities and equity-related securities of worldwide companies that seek to offer growth potential and are active in areas such as the sustainable transport, renewable energies, responsible agriculture, food and water production and supplies and also recycling and waste reduction.

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