Green bonds keep ESG momentum alive with US$600 billion forecast

Green bonds are in the middle of an “unprecedented” surge in issuance according to new commentary from global asset manager, AXA Investment Managers (AXA IM), attributed to a perfect storm of favourable regulation and returning investor interest in environmental, social and governance (ESG).

AXA IM said it expects green bond issuance to reach a milestone of US$600 billion this year, buoyed by the strength of the euro accounting for 60 per cent of new green bond issuances. This comes as the US (8.5 per cent) and emerging markets (from 10.4 per cent to 6.5 per cent) have slightly retreated from the market, paving the way for other regions to recover that growth.

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

“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%.

“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 also noted the release of China’s inaugural sovereign green bond propelled the market forward into the Asian region, signalling a surge in investor demand.

“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.

The commentary also highlighted Australia’s own growth in the green bond market, taking the steps to support the federal government’s commitment to net zero by 2050.

“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.

“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.”