Green bond issuance will be "the big thing" in 2021, according to Eoin Murray, head of investment at Federated Hermes, following Chancellor Rishi Sunak's recent announcement that the UK will issue its first Sovereign Green Bond next year.
Speaking at a Federated Hermes outlook event, Murray said: "I'm making a prediction that green bonds, in particular sustainability bonds or performance bonds - bonds where the rate of interest is linked to the achievement of some sort of green target - are going to be the big thing for next year.
"We've already seen Chancellor Rishi Sunak making some promises from the UK Government."
Rishi Sunak: UK to issue first green bond and require firms to disclose climate risk
He added: "My expectation is we'll see corporates increasingly issuing sustainability or performance bonds of that type. I've even gone as bold as to predict that maybe as much as a quarter or third of issuance next year will be of that variety."
Murray said there had already been "immense" flows into ESG-integrated investing and into engagement stewardship this year and added that this long-term trend is set to continue.
Discussing central bank policy, he said that on the monetary side, he could not see the central banks "changing their stance anytime soon and taking back that wall of liquidity that continues to prop up markets" and that, on the fiscal side, he expects "more to come and my suspicion is that it will be increasingly green, even in the States".
Louise Dudley, portfolio manager, global equities at Federated Hermes, acknowledged that the US market had been a "laggard" in terms of ESG adoption, with some US companies not as progressive as European and Japanese companies.
"But we are seeing that changing with the top down change," she said, referring to incoming US President Joe Biden.
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Murray agreed that the prospective Biden administration was a "positive tipping point" for climate progress.
President Donald Trump recently pulled the US out of the Paris Climate Agreement, but if the US were to rejoin the Paris agreement under Biden, it "will be a very positive statement", Murray added.
During his presidential election campaign, Biden announced a four-year $2trn climate plan and pledged to reach net-zero emissions by no later than 2050.
"I'm hopeful that the US will get to a position where they can make a net zero carbon commitment alongside the vast majority of the G10 - only Brazil and India are outliers. The US may be able to lean on Brazil to do something good in the climate space," Murray added.
