Green bonds are most popular sustainable fixed income investment among institutional investors NN IP find

Sustainability as an investment theme looks set to be a permanent feature of the asset management landscape. One sustainable asset class that is gaining increasing prominence is “green bonds”, or bonds in which the proceeds must be spent on projects that support the environment. But how keen are investors to “greenify” their portfolios?

NN investment Partners (NN IP) carried out a poll amongst investors which found that green bonds are the most popular sustainable fixed income instruments among institutional investors, with 45% saying they make the greatest positive impact. This was followed by sustainability linked bonds (37%), social bonds (11%) and transition bonds (7%).

But the greatest barrier to green bond investing is the perception of inferior investment returns, according to 44% of respondents, followed by fear of greenwashing (38%) and insufficient market capacity (19%). More than three in five respondents (63%) say they would use green bonds as an “impact bucket” separate from their traditional bond allocation, whereas 20% would use them to replace corporate bonds and 17% to replace government bonds.

Although there are several passive alternatives available in the market, NN IP believes there are two key reasons that investors should favour active investing in green bonds.