Sustainable fixed income will continue its "tremendous growth" over the course of the year, according to a senior bond specialist for Nikko Asset Management.
Andre Severino, head of global fixed income for the fund management group, said despite some "recent retrenchment" in the sustainable fixed income market, he expected this to be short-lived.
He told FTAdviser: "The green bond market has experienced tremendous growth since its establishment in 2007, expanding from a negligible amount of issuance to surpassing the $1trn (£0.82trn) mark just two years ago.
"While there has been some recent retrenchment, this is merely a reflection of what happened in the global fixed income markets overall, due to macroeconomic circumstances. We believe 2023 will demonstrate a resumption of its upward trend."
According to Severino, a change will involve how the money raised will be deployed. He explained that, historically, the proceeds have been allocated towards supporting infrastructure that mitigates the effects of climate change, specifically in energy, transport, and buildings.
However, in recent years an important development has been the emergence of a more diverse offering, with significant issuances of social, sustainability, and sustainability-linked bonds from various categories of issuers, including those beyond supranational development banks. This will include regional development banks, governments, government agencies, corporates and financials.
At the end of the first half of 2023, $4.2trn (£3.46trn) of green, social, sustainability, transition, and sustainability linked (green, social and sustainability-plus) debt has been issued across global markets according to The Climate Bonds Initiative.
Some 36 per cent of this issuance is corporate and the balance is in sovereigns, supranationals and agencies.
He said: "Given the market size a manager is able to assemble a diversified global fixed income portfolio. There is some concentration in EUR and US, and in financials and utilities given the need for transition finance in those sectors.
"With these exceptions, it is possible to assemble a globally diversified portfolio that can achieve returns in line with market expectations for the asset class."
Thomas Coudert, head of fixed income sustainability at Axa Investment Management, said he believed the sustainable fixed income market was "the most mature and developed segment of the sustainable finance universe".
He said: "The fixed income universe is mature and offers large potential for diversification with more than $63trn (£59.1trn) of bonds available in the ICE Global Broad Market Plus Index. Even if you limit your investments to use of proceeds bonds, you will be able to invest in sovereign, supra, agencies and corporates across the globe.
"The green, social and sustainability bonds market has indeed significantly grown over the past years enabling managers and advisers to build dedicated investments solutions with different risk-return profile, either focusing on a specific asset class such as credit IG, or maturity bucket or region or even thematic."
