According to AXA IM data based on Bloomberg indices, the green-bond market continues to grow in absolute and relative terms. Green bonds represented 2.5 per cent of the total world bond market in Q1 this year while green, social and sustainability (GSS) bonds combined account for 4 per cent. Ple says the green-bond market has also grown faster than the conventional bond market, especially when taking into account the relatively small green component of sovereign debt.

The main risk to growth, Ple insists, is uncertainty and volatility in bond markets since the start of the year rather than a specific issue with the green asset class.

Source: AXA IM, Bloomberg 30 April 2025

The primary demand driver, he continued, is regulatory pressure for net-zero engagement and increased transparency – a phenomenon first witnessed in Europe that he now believes is becoming a global norm. Green bonds remain an attractive option for investors in this context. Advantages include the simplicity of the instrument: Ple argues that it is the most appropriate means of addressing investors’ net-zero ambitions or sustainability goals without significantly changing their risk-return profile.

On the supply side, it seems inevitable that Europe will do the bulk of the issuance heavy lifting. “The euro is clearly the main engine of growth within the green-bond market,” Ple says. “Most European issuers are using green bonds to finance their mission to net zero and plenty of issuers from outside Europe are issuing in euros because that is where demand initially was.”

Meanwhile, US dollar-denominated green-bond supply as well as global supply from US issuers declined in 2024. A number of existing issuers also appear to have stopped issuing green bonds in 2024 – “highlighting how ESG has fallen out of favour in the US”, according to Ple.

While insisting that this does not mean sustainable investment in the US has come to a complete halt – there has been a pickup in social- and sustainability-labelled US dollar issuance, for instance - Ple has limited expectations for US dollar green-bond issuance growth. “I am not particularly optimistic about the US – it is hard to be,” he says. “But this may not affect the green-bond market negatively, because the US was not a big contributor anyway.”

AXA IM expects US dollar green-bond supply to fall to 10-15 per cent of the total, from a peak of 25 per cent. Much of the remaining volume will come from emerging market issuers that generally issue in US dollars rather than their local currencies.

On the other hand, Ple believes there is significant potential for sovereign green-bond supply. Labelled issuance has proliferated in Europe, with every sovereign except Portugal, Greece and Finland having debuted a programme.

With the US likely taking a step back and Europe closer to a mature market, AXA IM’s focus is on other markets to provide incremental growth to the green-bond sector. Ple points to emerging markets, Asia and Australian dollars as areas where AXA IM believes there is potential for additional green-bond issuance.

KangaNews data reveal last year was a record year for Australian dollar GSS bond issuance by volume (see chart 2). However, the overall figure is inflated by the A$7 billion (US$4.5 billion) debut green bond from the Australian Office of Financial Management while the sector that is most active in Europe – credit – is struggling for momentum. Bank GSS issuance in Australian dollars is almost nonexistent and new corporate issuers have been thin on the ground in recent years.

With the AOFM making no firm commitment to green-bond issuance volume in 2025/26, growth may have to come from the Australian semi-government sector.

New South Wales Treasury Corporation (TCorp), Queensland Treasury Corporation (QTC), South Australian Government Financing Authority (SAFA), Treasury Corporation of Victoria (TCV) and Western Australian Treasury Corporation (WATC) have supplied a total of A$55.3 billion of syndicated GSS bonds to date.

SAFA’s programme is exclusively sustainability bonds, and it has issued A$27.3 billion in this format by syndication, according to KangaNews data – albeit some of this was retrospectively labelled.

Focusing specifically on green bonds, QTC is the largest issuer, having priced A$12.3 billion of green bonds by syndication. The issuer’s borrowing programme update for 2024/25 does not specify how much, if any, of its remaining debt requirement or the next will be funded in green-bond format. However, it notes that it may issue a green bond – including a new maturity – during the remainder of the financial year.

TCorp’s mid-year programme update outlines that one of its objectives for 2025/26 is ongoing issuance under its sustainability bond programme. WATC priced its second, and largest-ever, syndicated green bond – a A$2 billion October 2035 deal – on 13 May 2025 but with a small total funding task further supply will inevitably be limited.

Source: KangaNews 26 May 2025

Source: KangaNews 26 May 2025

Ple remains optimistic. “We witness a steadily growing number of issuers in the Australian market – every year a few new names join,” he says. “There were six new issuers in 2021 and 11 in 2024, and we account for around 16 different issuers in total. Eight issuers have printed in green format already in 2025, so there is plenty of room for optimism into the year ahead.”

Ple endorses the argument that the AOFM’s decision to issue in green format adds visibility and liquidity to the overall market. He expects the inaugural deal will provide other issuers greater incentive to access the market – including Kangaroo names.

Kangaroo GSS issuance has been increasing in absolute and relative terms since 2022 (see chart 3). Ple suggests the uptick in offshore-issuer supply in Australian dollars may reflect growth in the market as a whole or that Australia is getting closer to publishing a sustainable finance taxonomy. He says the latter is a commitment that could drive demand for green bonds and thus potentially attract more foreign issuers.

Though the corporate green-bond sector has enjoyed faster growth in Europe, Ple says this does not necessarily mean Australia is falling behind. He remains optimistic that Australian corporate green-bond supply will follow demand – which he believes is gradually picking up. “We already have investors in Australia using green bonds, but I tend to think it could become more mainstream. Once this happens, we should see a pickup in issuance from Australian issuers,” Ple says.

He suggests improved market conditions could support green-bond supply from the corporate sector this year. “The level of uncertainty so far this year has weighed on corporate issuers globally, and not just in green format,” Ple says. “While the first quarter has not been very favourable for taking initiatives, that does not mean it should not come later.”

Even with more demand or improved issuance conditions, GSS supply from corporate Australia will continue to depend on issuers’ capacity and willingness. Ple acknowledges that some business activities are more aligned with issuance in this format than others. But he adds: “As long as corporates take a net-zero trajectory, or try to embrace it, they might finance this via a green bond. I tend to be optimistic, but we need to be patient.”