Institutional investors are ramping up their interest in green bonds, according to an analysis of recent investment activity and mandates awarded by pension funds, endowments and other large investors.
Investors are also showing growing interest in integrating ESG factors into a wide range of fixed income strategies. A recent analysis by CleanTechIQ uncovered institutional fixed income mandates with themes that include climate, social impact and affordable housing.
The interest comes amid a growing body of research that finds a link between ESG factors and credit risk, including reports by Hermes Investment Management and MIT Sloan.
Here are just a few recent examples of mandates or other investment decisions involving green bonds:
- In December, the New York State Common Retirement Fund announced a $3 billion increase in its Sustainable Investment Program, raising its total commitment to $10 billion. The additional investments will include green bonds as well as renewable energy infrastructure.
- In April, Japan’s GPIF — the world’s largest pension fund — said it will invest in green bonds issued by the World Bank. The pension says it will also work to encourage its peers to invest in such bonds as well. The GPIF also announced that it has invested $500 million in World Bank-issued green, social and sustainable development bonds.
- In May, large Luxembourg pension Fonds de Compensation (FDC) issued a trio of sustainable investment RFPs, including €100 million ($114 milion) for green bonds. It selected Allianz Global Investors for the green bonds mandate.
- Also in May, Stichting Pensioenfonds, the Dutch pension that’s better known as ABP, said it would double its allocation to sustainable investments and said green bonds would be an important component of that increase. The pension had already invested some $125 million into green bonds issued by the government of Ireland last year.
- Last year, Denmark’s Arbejdsmarkedets Tillægspension (ATP) said it was increasing its green bond holdings.
- Andra AP-fonden (AP2) already holds more than $600 million worth of green bonds. The Swedish pension giant said last fall it will increase that figure.
Beyond green bonds, large investors are also looking at a host of ESG angles when it comes to their fixed income portfolios. Take insurance giant Nippon Life, for example: two years ago it created a new ESG investment and financing plan and made plans to invest some $1.8 billion in ESG-focused bonds over the next four years.
In February, the Treasury Division of the city of Boston announced its ESG Investment Initiative, which includes investing some $150 million of the city’s operating funds in short-term fixed income securities issued by companies with strong ESG practices. The city also will deposit $100 million in Boston’s community banks and other local financial institutions.
Last summer, a new investment policy came into effect at the Chicago City Treasurer‘s office, which included applying ESG factors to its $8 billion fixed income portfolio.
Early this year, French pension ERAFP hired Aberdeen Standard Investments to run a $182 million mandate focused on ESG corporate bonds. The asset manager is charged with integrating environmental, social and governance criteria into its fundamental analysis of the bonds it invests in.
Proponents of ESG and green bonds says they’ll continue to encourage more such bonds, as well as a greater focus on ESG and socially-responsible investing (SRI) factors when it comes to fixed income, since such moves can create a virtuous cycle for sustainable bond investing.
“Bond investors can be a key force in moving capital markets towards sustainability when they focus on transparency, purpose and impact,” says World Bank CEO Kristalina Georgieva.
EDITOR’S NOTE:
Last week, CleanTechIQ organized a forum, ESG in Fixed Income & Finance, at the Harvard Club of Boston that provided actionable insight into how ESG is being integrated into fixed income portfolio strategies and the growth of green bonds and sustainable finance. Our participants included institutional investors, asset managers, family offices and investment consultants that went in-depth on topics such as fund manager selection, developing metrics, impact data, bondholder engagement and the materiality of ESG factors in fixed income.
We will be publishing content with key insights from this forum as well as proprietary data on ESG mandates by institutional investors in the coming weeks, so stay tuned!
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