End-of-year global climate talks in Paris may cap an historic year for companies seeking to finance green projects via the bond markets.
Standard & Poor’s estimates corporate green-bond offerings will more than double this year to $30 billion. For SEB AB, the world’s top underwriter of the debt in 2014, the surge in issuance couldn’t come at a better time. The Swedish bank, which together with the World Bank back in 2007 created the concept of branding debt sold by environmentally friendly issuers, this month created a fund dedicated to investing in green bonds.
Investors are just as alarmed as everyone else by evidence the environment is suffering and are looking for ways to reflect this concern in their holdings, Marianne Gut, portfolio manager at SEB, said in an interview. “When people talk about the projects behind green bonds, they become happy, which is rare in the world of fixed income,” she said.
SEB’s new fund, which is open to retail and institutional investors, currently only has 13 million euros ($14 million) of assets under management. But by the end of the year, SEB sees that figure growing almost eightfold to 100 million euros, Gut says.
Holdings so far are mainly those issued by supranationals, but Gut “expects to buy more and more corporate bonds in-line with new issuance trends, as well as to broaden the asset base and pick up yield,” she said.
Vestas Wind Systems A/S was among a number of Nordic issuers of green debt in the first quarter. The world’s largest maker of wind turbines, which initially targeted a minimum principal amount of 300 million euros, ended up issuing 500 million euros in March after “the transaction was received very well by the European investors,” it said.
The green-bond market overall may this year expand to as much as $100 billion, according to estimates from the Climate Bonds Initiative, making it one of the fastest growing corners of the fixed-income market.
Sales of green bonds reached $9 billion in the first quarter, according to Bloomberg New Energy Finance, with supranational, sovereign and agency institutions still making up the bulk of new issues.
The S&P Green Bond Index has delivered investors a loss of 4.4 percent year to date, compared with a 1.75 percent gain on the Bloomberg USD IG Composite Bond Index.
“Green bond indexes have underperformed the broader markets because of a bias towards sovereign and supranational issuers and their shorter duration,” said Gregory Elders, an analyst at Bloomberg Intelligence.
But that may not discourage investors. According to Elders, as issuance grows to include corporates, longer maturities, high yield and emerging markets, that will increase their appeal and draw in a bigger group of potential buyers.