Green bonds, created to finance projects with a positive environmental or climate benefit, have been growing in popularity over recent years.
Money managers recognize the limitations of the green bonds market, although it has been gaining traction with institutional investors. In April, Swedish pension fund AP2, Gothenburg, split out 1% of its assets, about 3 billion Swedish kronor ($369 million), into a stand-alone green bonds allocation.
The value of green bond issuance in 2016 was $81 billion, surpassing $42.2 billion for the whole of 2015, according to the Climate Bonds Initiative, an international not-for-profit organization. It expects 2017 issuance to reach $100 billion.
My-Linh Ngo, senior environmental, social and governance analyst at BlueBay Asset Management LLP in London, said BlueBay does not have any dedicated green bond strategies, but continues to monitor it. “There are two main reasons for our position: Firstly, all bonds are assessed on their credit strength — if a bond is attractive we will invest in it regardless of it being a green bond. It has to stack up financially.” BlueBay is also not convinced the green bonds market is necessarily large enough to manage a dedicated fund. “There is not enough diversification of issuers, and there is too much demand chasing too little supply. We don't want to be in a position where we are forced to buy bonds that we view as unattractive just because they are green.”
Edith Siermann, Rotterdam, Netherlands-based chief investment officer, fixed income, at Robeco, said that in conversation with institutional investors, “it is often assumed that green bonds are the answer to sustainability. In my view, that is too shortsighted. Of course we support the initiative, and it is good to have green projects and invest in green solutions. But at the end of the day as an investor, it is important that the company as a whole is sustainable, not just one project.”