Green bonds gain popularity, a defensive bet as coronavirus pandemic weighs on markets, investment managers say

As banks and other publicly traded companies face pressure to demonstrate the measures they are taking to address climate change, green bonds are gaining popularity among issuers and investors in the Asia-Pacific region, in part because of their defensive tilt, according to investment managers.

Green bonds – fixed income products designed to fund projects that are positive for the environment – held up better than investment-grade corporate credit during the recent sell-off in the financial markets as the coronavirus pandemic weighed on the global economic outlook, according to Thomas Wacker, head of credit in UBS Global Wealth Management’s chief investment office.

“The green bond market, through its industry sector composition, is a lot more defensive than broad investment-grade corporate credit,” Wacker said. “[It] has held up better during the sell-off. The main reason is that conservative tilt, slightly better credit quality and more defensive names.”

Among green bonds, there’s very low weight in cyclical industries, such as oil and gas or consumer-driven sectors, helping them hold up “very nicely”, Wacker said.

Oil and gas producers have been hit hard by oil price declines in the past month amid a price war between Russia and Saudi Arabia, and the pandemic has eaten into consumer spending as governments have ordered people to avoid all but essential travel.