The global green bond market will grow by €300bn in 2021, reaching €1trn, according to forecasts by NN Investment Partners (NN IP).

Publishing its predictions for next year, NN IP noted several developments that are set to take place in the green bond market. Firstly, the final version of the European Union’s Green Bond Standard will be published and the European Union (EU) will start issuing green bonds from Q2 onwards for an estimated amount of €225bn. This is equivalent to one third of its Covid-19 recovery package. Lastly, several governments will start issuing green bonds in 2021.

Total annual issuance of green bonds in 2019 was €200bn and it is on track to be around the same this year. In 2021, the NN IP green bond team expects a 50 per cent increase in issuance, taking the total global green bond market to €1bn. Green bonds have been hugely popular with European pension funds in 2020.

For example, Denmark’s Sampension has already invested DKK 1bn in green bonds, having most recently invested DKK 100m in German green bonds. In addition, PFA has invested €180m in Dutch green bonds this year.

Swedish providers, Alecta and the Swedish Pensions Agency, have also invested in their government's green bond.

The EU Taxonomy and EU Green Bond Standard will be the first driver of the green bond market surge in 2021, stemming from the EU’s Sustainable Action Plan to finance sustainable economic growth.

Under the EU Taxonomy, an activity will qualify as ‘sustainable’ or ‘green’ if it contributes substantially to one or more of six environmental objectives or enables other activities to make a substantial contribution; does no significant harm to other environmental objectives; and complies with social and governance safeguards. The EU Green Bond Standard requires the economic activity/activities that a bond finances to be aligned with the EU Taxonomy.

NN IP believes that the finalisation of the first version of the new EU Taxonomy and EU Green Bond Standard will have a long-term positive impact on the integrity and transparency of the EU green bond market and will act as the blueprint for regulation in other regions.

Therefore, NN IP believes that this legislation piece could be regarded as a catalyst for the global green bond market growth, encouraging lagging sectors such as industrials to come forward with a green bond issuance. Currently, the market is dominated by financials, utilities and government-related issuers.

Commenting, NN IP portfolio manager green bond, Jovita Razauskaite, said: “These new regulations herald what could be a watershed decade for climate change mitigation, with Europe leading the way via its target to be carbon-neutral by 2050. ESG and green finance are really entering the mainstream. The pandemic has created a positive boost too, as a lot of countries clearly need more funding, and with green ambitions stronger than ever the green bond market will be widely viewed as a major opportunity.”

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