A top executive at the world’s biggest pension fund has expressed doubts over green bonds, saying that, without fundamental changes, the asset class risks becoming a “passing fad”.

Global green bond issuance, which was almost nonexistent a decade ago, reached $47bn in the first quarter of 2019, according to Moody’s credit rating agency. Total global issuance of the bonds, which are issued to support specific environmental projects, is expected to hit $200bn by the end of the year, from $167bn in 2018.

Japan’s Government Pension Investment Fund is becoming more heavily involved, demanding that its asset managers weave environmental, social and governance parameters into their investments. Buying green bonds is a “direct” way to achieve similar aims, the Y151tn ($1.4tn)-in-assets fund said in late June.

But at the same time, Hiro Mizuno, chief investment officer of the GPIF, told the FT that he is not convinced that such bonds will become a “mainstream investment product”.

For issuers, green bonds are “more costly and complicated and cumbersome” to arrange, he told the FT, while for investors, “it’s a bond with the same credit rating and the same interest rate — but they have to live with less liquidity”.

For green bonds to catch on, they have to be cost-effective for borrowers, Mr Mizuno said, pointing to Verizon’s example of a successful green bond sale. Earlier this year, the US telecoms group’s $1bn green bond was eight times oversubscribed, allowing it to price the debt at a lower yield than the company’s regular bonds. “If, like in Verizon’s case, the issuer can repeatedly issue more attractively, the additional cost of green bonds can be justified by the market,” he said.

Read More: @FT