02 Jun 2021

Expert’s View: Green bonds make climate action simple

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With rising acceptance of climate change—and an increasingly firm hand from regulators—many investors are turning to ‘green’ bonds to fund pro-climate projects. In our latest  Expert’s View, we investigate the diversification benefits of adding green bonds into a portfolio, and review their performance drivers.

Facts and Overview

  • Green bonds are designed to raise funds to finance eco-friendly projects. They are backed by the issuer’s balance sheet, and most are investment grade quality.
  • The green bond market is small in relation to the overall bond market. But it’s fast growing, and fundamental drivers look stronger than ever.
  • Green bonds are benefiting from rising investor demand for green assets, policymakers aligning with the Paris Agreement goals, and companies looking to transform their operational and product models.

Our key takeaways

  • Use of proceeds:  In 2020, most of the proceeds of green bonds were invested in energy, building, and transportation projects.
  • The ‘greenium’:  Most green bonds issued last year came with a yield level lower than or equivalent to conventional bonds, suggesting investors are in search of quality, labelled green bonds.

Chart 1: Green bonds – diversification and performance in a fixed income portfolio  

green bond performance

Sources: Lyxor International Asset Management, Bloomberg. Data as at 30/04/2021. Base date 28/02/2017. Past performance is not a reliable indicator of future returns.

Our green bond ETFs at a glance 

 

We believe that green bonds are a crucial part of the climate transition and we’re fully behind the campaign to #shiftthetrillions in debt markets into green investments. You can join the journey with our range of SFDR 9 compliant green bond ETFs. We’ve written before about what a positive impact can be achieved at a (relatively) small scale. Now imagine what more we could achieve if the vast potential of the bond market shifted to green investments! As greener investing becoming the norm, it’s no longer “why?” – it’s “why not?”

Please get in touch if you’d like to learn more, or visit our ESG Hub to explore Lyxor’s full range of green and ESG bonds. In the meantime, have a look at our green bond range below:


This article is for informative purposes only, and should not be taken as investment advice. Lyxor ETF does not in any way endorse or promote the companies mentioned in this article. Capital at risk. Please read our Risk Warning below.

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