Mirova Global Green Bond Fund: 2024 Impact Report

A record year for labelled debt despite headwinds

Political mandates come and go, climate challenges persist. The wildfires in Oregon last summer, increasingly violent hurricanes hitting Florida and Louisiana, the cyclone in Mayotte, floods in Italy, and so many other events illustrate the urgency of the climate situation, as starkly highlighted by the publication of the Copernicus report. It warns: 2024 was the hottest year on record, yet the election of Mr. Trump brings to light an anti-ESG discourse that has gained traction in North America and is already clashing with these climatic realities and constraints, which continue to incur significant financial costs.

This distrust towards sustainable investment has not prevented the supply of labelled bonds from posting a new record year in terms of issuance: $945bn in 2024, a 10% increase compared to the previous year, clearly showing that issuers remain eager to transition towards a low-carbon world that is conducive to maintaining a prosperous economy.

This growth is largely fueled by sovereign issuances and by corporate issuers such as utilities, industrials, and the discretionary consumer sector. Consequently, the continued expansion of the labelled bond market this year has intensified the convergence of the sustainable universe toward the conventional universe. It thus offers ESG investors the opportunity to gain exposure to a universe similar to that of a traditional index, such as a global aggregate, exposing them to the same performance drivers including duration, curve, or sector allocation.

A new record year in terms of issuance: $945bn in 2024, a 10% increase compared to the previous year, clearly showing that issuers remain eager to transition towards a low-carbon world that is conducive to maintaining a prosperous economy.

Not surprisingly, financial performance is the central concern for investors; when comparing the performance of the green bond universe to that of the conventional global aggregate, the gap between the two has been narrowing over the years, even though 2024 favoured the global green bond universe (2.14% yield vs. 1.68% for the euro-hedged global aggregate).

Investor interest in these strategies remains strong: inflows into ESG fixed income funds maintain a significant share of the total flows into this asset class. The share of ESG funds within the total fixed income universe has stabilised over the past two years, reaching around 6%, and even exceeding 30% for Euro corporate funds.

Another topic that took centre stage in 2024 was artificial intelligence. It represents a genuine opportunity in the fight against climate change, through the gains it enables in energy efficiency, resource management, and sustainable agriculture. Its development, conducted within an ethical and transparent framework, holds many hopes. Responsible investment (RI) will certainly have the task of supporting the development of this technology, particularly by ensuring that the energy needs of data centers come from renewable sources, as fossil fuels or even nuclear resources might not be sufficient to meet them. In order to be aligned with a sustainable trajectory, the use of recycled materials, the extraction of raw minerals will be crucial as well. There is no shortage of work for Responsible Investment!

Finally, we noted the implementation of new regulations in 2024, such as the EU-GBS. Coming into effect on December 21 last year, this framework aims to enhance the transparency and integrity of green bonds, which has been at the core of Mirova’s mission since the launch of Mirova Global Green Bond in 2015.

This new standard completes the transformation of the green bond market into a mature market, clearly recognized by investors, far from the niche market it represented in its early days. Nevertheless, the context of reticence towards regulation highlights the difficulty of reporting data, which incurs a cost in time and in resources for issuers without ensuring that they generate any ESG impact. This is why the ESG analysis of issuers is more essential than ever, and this is what we have always done at Mirova: conducting in-depth analysis of issuers' ESG profile before any investment, to ensure that we provide our clients with a portfolio that addresses the climate challenges.