Green bonds market to top the $1tr mark in 2021

With a record number of issuances following the launch of various sovereign green bonds and overall diversification of issuers, 2020 has been another huge step forward for the green bond market. Green bonds represent a very appropriate tool to channel investments towards transition funding needs, and we believe 2021 will be another record year for the market which is likely to reach $1tr. Below, we outline why and where we see this growth emerging, as well as a focus on green bonds’ carbon footprint and their social benefits.

Expansion and diversification of green issuance

Many governments have committed to a net-zero carbon pledge, and many more should follow. In total, 26 countries now, or are about to, have a net-zero carbon pledge set in law and many others are currently discussing potential targets. However, only 11 governments have already launched sovereign green bonds. We expect this figure to grow as an increasing number of countries are due to put their words and commitment into action and investments, which are likely to be financed through green bonds. Even though many countries are still working on defining targets and how to reach them, it signifies the strong momentum of the move to sovereign bonds financing environmental projects. After Germany, Hungary, Sweden and the Netherlands launching theirs over 2020, Italy, Spain and the UK have already pledged to issue a green bond next year and certainly many others are likely to follow.

On the credit side, we have seen that once a new issuer of a new sector joins the market, it paves the way for others to follow. This is really encouraging for sectors such as automotive, telecoms or real estate which have huge potential for further green issuances given that the potential number of peers to follow remains large. In addition, existing issuers currently represent a larger share in terms of market value than in terms of number. The number of issuers in the European automotive sector may represent only 16% of the total number of issuers but their market value is close to 50% of the sector[1]. As a result, these issuers tend to come to the market more frequently or with a larger issuance amount which should provide additional support to the market. If some sectors are still difficult to imagine in the green bond market, we believe there should be a progressive rebalancing from utilities towards industrial sectors as the recent dynamic of new sectors joining the market is certainly just the beginning.

This level of diversification we have identified in the market is also reflected within the projects financed by green bonds themselves. These projects are progressively moving away from renewable energy towards other ways of reducing energy consumption, such as clean transport and the development of green buildings.

Regional rebalancing of the market

In Europe, even if the region is already ahead of the curve in terms of issuances, the market is likely to continue to grow given 30% of the EU Recovery fund will be dedicated to the energy transition for example.

On the other side of the Atlantic, the green share of the USD credit market barely reaches 1% compared to the EUR credit market where it represents 5%[2]. This is somewhat underwhelming when we know that the USD credit market is around three times bigger than EUR credit market[3]. However, it does emphasise, once again, the huge potential of the USD green bonds market especially following Biden’s win[4], who has committed to a $2tr investment plan in the energy transition and to bring the US back in the Paris Agreement.

Green issuances can cut a companies' carbon footprint 

The issuances of green bonds continue to prove their benefits in terms of environmental impact, with the carbon footprint being on average half that of an equivalent conventional bond.

Around 90% of green bond projects aim to either reduce energy consumption or increase clean energy production, which is why we generally focus on carbon emissions when assessing a green bond. Two key elements are often considered: the carbon induced by the projects and the carbon emissions avoided (which is the difference between carbon induced by standard activity vs carbon induced by green projects). This allows us to assess the share of reduction enabled by a green bond compared to a conventional bond[5]. This would mean that in the long-term corporates issuing credible green bonds would have, on average, their carbon footprint cut by half.

Green bonds and the social benefit

The impact of green bonds goes even further than the environmental benefit. Our internal Sustainable Development Goals (SDG) mapping tool has shown that around 25% of green bond investments contribute to a social benefit – mainly SDG3, Good Health and Well-Being, and SDG8, Decent Work and Economic Growth – with 75% associated with environmental SDGs. As an example, investing in renewable energy will contribute to producing clean energy, which will help lower pollution, therefore supporting global health.

AXA IM’s internal framework maps every green and social project against the 169 underlying targets of the 17 SDGs. This enabled us to determine the contribution of every green bond we cover to every SDG.

As a responsible and long-term investor, we are delighted to see this acceleration and that the green bond market will contribute to the green transition. We look forward to seeing many more corporates and governments issue their own green bonds and how this will grow the market over the long-term.


[1] Source: Ice Bank of America ML Euro Corporate Index (ER00) with a classification ML level 3

[2] Source: AXA IM, Bloomberg - November 2020

[3] Source: AXA IM, Bloomberg - November 2020


[5] Source: AXA IM, KPIs (Carbon emission, tCO2 avoided and Cars removed) are calculated based on a 76% coverage of the Ice BofAML Green Bond index.


Ellis Ford

+44 20 7003 1225

Julie Marie

+33 6 85 59 73 95

Jamie Wynn-Williams

+44 20 7003 2680

Hélène Caillet

+33 1 44 45 88 06

About AXA Investment Managers

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