Green Bonds Survey: What investors want

Catherine Snowdon

In all the debate about the future of green bonds, the voice of investors has rarely been heard. But the results of a Euromoney survey show they have a clear message for issuers and the banks that lead manage their deals: they want better impact reporting, more corporate bonds, and they don’t want bonds to price through the curve. Give them that, and a sustainable, credible, sizeable and demand-driven market is there for the taking.


Zurich Insurance Group is one of the most powerful asset managers in the world. It has more than $200 billion under management. It also has a clear commitment to invest its assets in ways that, in its own words: 'Do well and do good’. 

So when Manuel Lewin, head of responsible investment at Zurich Insurance, speaks about the developments he wants to see in the so-called green bond market, issuers and intermediaries should take note.

"What hasn’t sunk in with the broader potential issuer base is that in the end the advantages of issuing a green bond go way beyond the diversification of the investor base or hopes of an effect on pricing," Lewin says. "Issuing a green bond is a signal to the market that here is a company that thinks about risks related to climate change and to other environmental challenges and has a plan for how to tackle them by making investments to address them. This could and should affect the broader assessment of the credit risk of that issuer."

Chris Wigley is a senior portfolio manager at responsible investment fund Mirova, which launched a specific green bond fund that now manages €64 million. He sees "tremendous" potential in the corporate market and recognises the benefits for the companies involved.

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"Recently we’ve had the G7 announce that they want to be fossil fuel free by the end of the century," he says. "This type of change poses a risk to some corporates and they have to adapt. It’s a challenge for them and we think green bonds are part of the solution."

The views from these influential investors are clear, but they have rarely been heard in the debate about the future of the green bond market. Much of the discussion over the past few years has centred on the efforts of issuers and the banks that sell the securities to get the market off the ground. To its detractors, the green bond market has been as much about marketing as real substance. 

But a Euromoney survey of close to 40 leading fixed income investors shows the true potential of the green bond market: that it has become, quicker than many think, a core part of global fixed income. And more importantly, that it can be a sustainable market in its own right, one driven by real demand rather than a desire to demonstrate sustainability credentials.

In the early days of the green bond market were dominated by supranational and agency issuers. But the Euromoney survey shows there is now a clear desire from investors to move on, and that a market for corporate green bonds needs to develop.

Why? First and foremost, the projects supported by such deals often relate to energy efficiency, and the outcomes of these projects are viewed as easily assessed. The second is an age-old investment requirement: corporate bonds are crucial for portfolio diversification.

"Corporate bonds generally provide more yield than supranational bonds, and though I am trying to support green, I have to be cognizant of our returns. Corporate green bonds offer a way to do that," explains Cathy DiSalvo, an investment officer at the California State Teachers Employees’ Retirement System (CalSTRS), which has been a supporter of the green bond market since the $190 billion fund first bought a World Bank green bond in 2009.

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The diversity on offer is twofold. Not only do the different issuer types – be it banks, manufacturers, industrial firms, energy companies or whatever – carry with them different credit qualities that can appeal to portfolio investment strategies, but there is also diversity in corporate green bond asset types that will appeal to varying investor sophistication. These include green high-yield bonds, green project bonds, green asset-backed bonds, green covered bonds and even green real estate investment trusts.

"Europe is ahead in corporate green bonds, but the US is starting to come around. We want to see them being issued so we can buy them to diversify our portfolio. It’s a huge thing for us. We need a variety of credit ratings and some higher risk opportunities," says Benjamin Bailey, senior fixed income investment manager at Everence Financial in the US.

"Actiam – as a major buyer of green bonds – is delighted with the market growth we’ve seen in recent years," says Manuel Adamini, special adviser to Actiam, a Dutch responsible investment asset management firm. "It’s great that corporates have entered the space, but it is still dominated by sovereign and supranational agencies. For green to become the new 'business as usual’, the corporate sector has to endorse it much more strongly, by deploying more green assets and by financing them green."

Lewin at Zurich Insurance adds: "Corporate bonds are a large segment of the fixed income market. It would be nice to see a higher proportion of that being issued as green, something akin to what we have seen in the supranational space. Of all the different fixed income sectors, the corporate one has been disappointing in terms of the issuance we have seen."