Dutch public pension fund manager APG has thrown its weight behind the EU’s first green bond issue, purchasing EUR195 million of the debut issue.
Investing on behalf of ABP, the national civil pension fund, and seven other industry PPFs, it participated in the inaugural NextGeneration EU (NGEU) green bond, which comprises 30% of the EU’s EUR800 billion post-Covid-19 economic recovery package. Green bonds enable investors like PPFs and sovereign wealth funds (SWF) to pursue ESG objectives in fixed income, supporting the green transition across all asset classes.
The green bond market is rising fast and SWFs and PPFs are leading demand, while on the supply side issuance momentum has been sustained through the pandemic. Yet, the sovereign green bond market is small compared to traditional bonds, representing just 0.1% of government debt securities in the OECD area.
The first EUR12 billion NGEU green bond issue is the largest in the world to date and will support environmental and climate-related investment. The issuance of the 15-year bond was more than 11 times oversubscribed, indicating a big appetite for EU green bonds in financial markets. By the end of 2021, the EU Commission plans to have issued a total of EUR80 billion to finance the NGEU.
The NGEU recovery fund aims to allocate 37% of the money to climate initiatives with the remaining 63% subject to a “do no significant harm” principle. The initiative supports the EU’s commitment to reducing CO2 emissions by 55% by 2030 and to achieve carbon neutrality by 2050.
The EU Commission proposed a European green bond standard, which is yet to be approved by the EU Parliament and member states. It establishes that green bonds will have to prove a positive impact on the environment and the green bond uses a similar framework, which aligns with the International Capital Markets Association’s green bond principles.
According to APG’s Oscar Jansen, who manages a portfolio of euro-denominated credits, “The diversity in the potential use of proceeds in an issue like this enables us to maintain a broader and more diversified exposure to a variety of green investments. Boosting the demonstrable impact of our portfolios is a crucial part of ensuring that our pension fund clients meet their ambitious responsible investment goals.”
SWFs are also looking to issuing green bonds with Saudi Arabia’s Public Investment Fund (PIF) planning to tap debt markets for its sustainable domestic economic development projects. Its portfolio companies are also turning to green bonds with the Red Sea Development Company issuing a US$3.8 billion green loan earlier this year for new hotels powered by renewable energy. Amaala, a renewables-powered Red Sea tourism project owned by PIF, is looking to raise up to SAR10 billion (US$2.67 billion) through a green bond issue next year. The financing will be used to build nine hotels on the northwest coast as part of the first phase, scheduled for completion in 2024.