Investment Institute
Asset Class Views

A word with our expert on green bonds

  • 10 May 2022 (5 min read)

‘The green bond universe is an attractive alternative to conventional debt’

Provided they are carefully selected, green bonds have major advantages for a responsible investor, not only for their positive impact on climate change but also from an investment returns perspective. Johann Plé, a fixed income manager at AXA IM, sheds light on the current challenges and opportunities in this fast-growing market.

Why is the green bond market developing so fast?

This corresponds to a growing awareness of the climate emergency, embodied in the multiple commitments of both issuers and investors to carbon neutrality. It is also a response to pressure from regulators who now often require companies to report on climate efforts.

Green bonds are an ideal instrument because they allow issuers to identify specific projects to which investors can explicitly allocate their capital. Increased transparency on the use of funds is also a real advantage over conventional obligations. For investors, this is a way to reduce their risks and seize opportunities. It requires them to select green bonds based not only on the projects they finance, but also on the overall strategy of their issuers. In this way, investors avoid those most exposed to climate change and, instead, target those who are best able to take advantage of changing demand.

What are the advantages of this asset class in an allocation?

The green bond universe offers a balanced risk profile: half of it is made up of corporate issuers (compared to 25% in the traditional bond universe) and yet retains a relatively similar sensitivity to rates. The rally in rates and the widening of credit risk premiums seen in recent months make the green bond universe attractive compared to conventional bonds.

Between active and passive management, which should investors choose for this market?

I believe that active management is much more appropriate in the green bond market. Not all green bonds are equal and one should not invest indiscriminately across the universe. Otherwise, this would mean investing in issuers who have some green projects but have no desire to improve their climate profile. With active management, we can exclude this type of issuer. An example of where we do this is airports as they are seeking to put forward projects to improve their energy performance, but at the same time are continuing to expand and develop air transport. That would not make sense for a green investor.

In addition, it becomes possible to generate excess returns by actively managing the “greenium”. This refers to the slight price differential seen between green and conventional bonds of the same issuer, due to the strong demand for green bonds. This premium, while low, varies significantly over time. For German 10 year debt, for example, it went from 1 basis point (bps) to issue at 7 bps before returning to 5 bps1 . An active manager can exploit this dynamic.

Related Articles

Asset Class Views

Global Factor Views: Positive on Growth and Quality but warning signs for Momentum

Asset Class Views

The ubiquity of uncertainty and long-term investment opportunities

Asset Class Views

Multi-Asset Investments Views: Bad news on the way… and therein lies the good news

  • by Andrew Etherington
  • 04 March 2024 (7 min read)


    This website is published by AXA Investment Managers Asia (Singapore) Ltd. (Registration No. 199001714W) for general circulation and informational purposes only. It does not constitute investment research or financial analysis relating to transactions in financial instruments, nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities. It has been prepared without taking into account the specific personal circumstances, investment objectives, financial situation or particular needs of any particular person and may be subject to change without notice. Please consult your financial or other professional advisers before making any investment decision.

    Due to its simplification, this publication is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this publication is provided based on our state of knowledge at the time of creation of this publication. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

    All investment involves risk, including the loss of capital. The value of investments and the income from them can fluctuate and investors may not get back the amount originally invested. Past performance is not necessarily indicative of future performance.

    Some of the Services and/or products may not be available for offer to retail investors.

    This publication has not been reviewed by the Monetary Authority of Singapore.