Green bond rush tops warning on bubble

Finance | Reuters 23 Sep 2021

Britain sold pounds 10 billion pounds (HK$106 billion) of its first "green" government bond yesterday after attracting over pounds 100 billion of demand from investors - a record high that shows the clamor for assets that can be marketed as good for the planet.

But the Bank for International Settlements had earlier warned of the growing risk of a price bubble in environmentally friendly-focused asset markets, such as green bonds.

Increasing urgency to limit global warming and in tackling other issues such as racial and social inequality has seen the environmental, social and governance investment sector explode in popularity in recent years.

Some estimates indicate ESG-focused assets have soared to a value of US$35 trillion (HK$272.3 trillion) and now account for more than a third of all assets professionally managed by banks and investment funds.

Claudio Borio, head of BSI's Monetary and Economic Department, referred to it as the "green bubble" risk, highlighting how the surge in exchange-traded funds and mutual funds was comparable to parts of the mortgage-backed security market in the run up to the global financial crisis.

"You could have too much, too quickly of a good thing," Borio said. "We know valuations are rather rich."

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