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In terms of the type of investment, green bonds are a natural choice for climate-conscious government bond investors. It’s a small but rapidly growing universe. According to research by Pictet Asset Management and the Institute of International Finance, the size of the sustainable bond market almost doubled in 2021. But the bulk of that growth came from corporate bond markets and the total amount of ESG-labelled debt accounts for only 2 per cent of the overall bond universe. By 2030, however, that proportion could be as high as a third, with particularly strong growth in emerging markets, the analysis shows.5As well as its limited size (so far), the green bond market is hampered by a lack of universal rules and standards. Currently, the labelling and certification of sustainable bonds differs considerably from one country to another, while efforts to harmonise disclosure requirements haven’t met with much success. We expect to see increased standardisation as the green bond market deepens and increases in value. Given these limitations, we believe that a climate-focused sovereign debt portfolio shouldn’t focus exclusively on green bonds. It should also invest extensively in traditional bonds, which are in greater supply, are easier to understand and exhibit more attractive valuations.