The largest pension fund in the world has said that green bonds could be a “passing fad” unless the asset class undergoes fundamental changes.

According to a Financial Times report, Japan’s Government Pension Investment Fund (GPIF) chief investment officer, Hiro Mizuno, said that he is not convinced the asset class will be a “mainstream investment product” as they are more costly for issuers and deliver less liquidity.

According to credit rating agency Moody’s, green bond issuance reached $47bn in Q1 2019, with the total global issuance of green bonds expected to hit $200bn by the end of the year, up from $167bn in 2018.

The bonds are issued to support specific environmental projects and are considered a direct way for asset managers to add environmental, social and governance limits to their investments.

However, Mizuno told the Financial Times the for issuers the bonds are “more costly and complicated and cumbersome” to arrange, while for investors have to live with the same interest rate with less liquidity.

Speaking at a UN conference in Paris last November, Mizuno said green bonds were a “lose-lose” proposition.

Questions around greenwashing and over regulation have also hit the market.

Yesterday (3 June), the UK government published its Green Finance Strategy, outlining how the financial sector can deliver global and domestic climate change objectives.

The report added that The Pensions Regulator will be responsible for co-establishing an industry working group on climate change guidance for pension schemes.

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