The size of the green bond market will surpass $1 trillion by the end of this year, according to NN Investment Partners (NN IP).
The asset management group – recently acquired by Goldman Sachs – said recent European Union regulations had encouraged a significant shift towards investments aimed at achieving net zero goals and tackling climate change.
Douglas Farquhar, Green Bond Client Portfolio Manager at NN Investment Partners, said: “Since mid-2021, the green bond market has grown exponentially as it has gained support from investors to allocate solutions that can create positive environmental impact.
“Short-duration and corporate green bond funds remain popular due to the potential for high yield, performance and positive environmental impact.”
NN IP said it expects the green bond market to reach 1.1 trillion euros ($1.18 trillion) this year. In some markets, such as the UK, investors lagged in their allocations compared to Europe, indicating there was room for growth, the asset manager said.
This growth is also based on the assumption that the energy transition will lead to an acceleration in emissions, as sovereigns and corporations turn to debt markets to finance alternatives to fossil fuels and explore opportunities for low-carbon transport.
NN IP’s prediction follows a similar prediction from S&P Global Ratings, which expects the green bond market to reach $1.5 trillion this year.
However, the sector took a short-term hit partly due to the effects of the Russian-Ukrainian war. Refinitiv data suggests green bonds raised 7% less in the first three months of this year, compared to the same period in 2021.