China, India and France are poised to spur new “green bond” issues, meaning the nascent market is set to boom despite a setback in the United States under President-elect Donald Trump.

Total issuance of green bonds this year is tipped to hit $US80 billion ($108.2 billion), bringing the total market size to $US150 billion ($202.8 billion).

“The green bond market is in its infancy but it is growing fast and has huge potential,” AB senior portfolio manager Erin Bigley said.

She tipped that more mainstream institutions would pile into green bonds as attitudes about how to manage environmental, social, and governance (ESG) risks within investment portfolios shifted towards a more proactive stance.

“I think we have already seen an evolution is ESG thinking from exclusion to engagement, and the next phase will be all about how to have a positive impact,” Bigley said.

Green bonds are just like regular debt instruments except the issuer promises to use the capital raised to invest in “green” initiatives, typically renewable energy infrastructure or property, or transport projects with a low carbon footprint.

AB, formerly AllianceBernstein, is a global investment management and research house with $US490 billion ($660.9 billion) in assets under management.

Bigley made the comments during a panel at the Conexus Financial Fiduciary Investors’ Symposium in Healesville, Victoria, November 14-16.

“I think the green bond market is one of the most interesting areas developing in the investment markets,” Bigley said.

The market is not even 10 years old, having kicked-off in 2007. Pioneer issuers were supranational bodies such as the World Bank.

Demand for green bonds really started to get going in 2013 when corporate issuers, such as Bank of America, started coming to market. Three of Australia’s big four retail banks have since issued green bonds.

“France has confirmed plans to become the first sovereign green bond issuer and both China and India have set out frameworks to guide corporate green bond issuers,” Bigley said.

“China will be the biggest originator of green bonds this year”.

Bigley tipped these global forces to offset the pivot away from climate risk mitigation policies in the United States under President-elect Donald Trump.

AB now runs all corporate bonds through an ESG screening process that assigns a quantitative score based on the company’s risk profile that directly effects its credit rating, and thereby likelihood of the manager investing in it.

Bigley said there were still a number of challenges in executing this process, notably that disclosures were not uniform and many big companies in developed markets were not interested in complying with requests for information.

Engagement is much better in emerging markets where issuers really want AB’s capital, she said.

Patchy transparency, inconsistent standards, and a weak secondary market are the main challenge for buyers in the green bond market.

“Expect more private debt solutions to address the climate market,” Bigley said.

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