Bonds

EU further strengthens its position as sustainable finance leader

The EU has issued its first green bond. The proceeds will be used to finance the economic recovery in the wake of the Covid-19 pandemic. “As a committed labeled bond investor, APG is enthusiastic about participating on behalf of our clients in the EU’s long-awaited debut issue”, says treasuries portfolio manager Chris Lam. APG has been allocated €195 million in EU green bonds.

This inaugural NextGeneration EU (NGEU) green bond is part of a large economic recovery package (worth around €800 billion) to support EU member states in tackling the consequences of Covid-19. Around 30% of the funding is earmarked for green bonds and will focus on environmental and climate-related investment. According to Oscar Jansen, who manages a portfolio of euro-denominated credits, this week’s €12 billion inaugural issue is just the first step on a path which will establish the EU as the world’s largest green bond issuer. “It underscores Europe’s leading position in sustainable finance”. In 2020, APG already invested in the

EU’s SURE social bond, the proceeds of which help reduce the negative social impact of the pandemic.

Supporting member states’ sustainable recovery

According to Lam, this event is a milestone for both Europe and the green bond market. “This issue will give investors unprecedented access to financing green projects across a range of countries that will help the EU achieve its ambitious climate goals. Energy-efficient infrastructure and transportation, and renewable energy investments will help rebuild post-Covid Europe and reduce greenhouse gas emissions. But there will also be funding available to stimulate innovation and finance research to aid green transition”. 

The EU’s green bond framework has been drawn up in alignment with the market standard – the International Capital Markets Association’s green bond principles – and positively assessed by second-opinion provider, Vigeo Eiris. It identifies nine investment categories in which it will finance green investments and reforms via its member states recovery and resilience plans.

Solid framework, monitoring and reporting to mitigate risk of greenwashing

As instigator of the EU Taxonomy – a classification system for environmentally sustainable investments – and the soon-to-be-implemented EU Green Bond Standard, the EU has blazed a trail for establishing a regulatory framework for sustainable investments and for measuring their impact across a range of industries. In the case of this issue, where individual countries will submit plans showing how they intend to allocate funds, ensuring transparency and monitoring how the proceeds are actually used will require substantial oversight at EU level. The allocation reporting will be verified by an external auditor and environmental impact will be measured according to standard climate impact reporting metrics.

Jansen is not unduly concerned about greenwashing. “With the solid regulatory structure the EU is building and the emphasis on the ‘Do no significant harm’ criteria for investments, there is a strong focus on ensuring that the proceeds of this bond will be used for truly green investments,” he says. “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.”

APG is one of the world’s largest labeled bond investors and committed to supporting this market’s growth and development. At the end of last year, APG organized a webinar where representatives from the investment world and the EU examined the planned support program, its potential impact on the labelled bond markets and the important role investors have to play.

At the end of 2020, we had invested €12.2 billion in green, social and sustainability bonds on behalf of our pension fund clients. Our APG Guidelines for Green, Social and Sustainable bonds explain more about our policy for investing in labeled bonds. 

The growth of Europe’s sovereign green bond market continues unabated as, within the space of two weeks, two relative latecomers, Spain and the UK swell the ranks of sovereign issuers. APG has invested in both of these latest new issues on behalf of its pension fund clients, receiving an allocation of €99 million in the Spanish bond and £224 million (approximately €261 million) in the UK’s issue.

In 2020 and 2021 so far, European sovereigns Sweden, Germany and Italy have all issued inaugural green bonds and with the first green issue from the Next Generation EU (NGEU) fund penciled in for October, existing issuance records look set to be broken.

Impact

Green bonds are issued by companies, governments and government-related entities to fund climate-related or environmental projects. Their transparent use-of-proceeds structure makes them appealing to investors as you can more easily assess the impact your investment has. Europe is at the forefront on regulation and reporting on green investments and the EU taxonomy that is currently being implemented will raise the bar still higher. The labeled-bond market’s popularity is underscored by the investor appetite for these new issues. The € 5 billion Spanish issue was 12 times oversubscribed and the UK’s £10 billion green gilt around 10 times.

Spanish inaugural issue supported by strong green-bond framework

Spain has committed to ambitious climate and energy targets in terms of emission reductions, renewable energy, energy efficiency and enhancing climate resilience. According to second- opinion provider Vigeo Eiris, bonds issued under the Spanish sovereign green bond framework will make an ‘advanced’ contribution to sustainability, the highest score on VE’s four-point scale. The country’s framework is also aligned with the four core components of the ICMA’s Green Bonds Principles and best practice as identified by VE.

According to the framework, there are seven eligible categories to which Spain’s green bond proceeds could be allocated. These are renewable energy, clean transportation, energy efficiency, sustainable water and wastewater management, biodiversity and natural resources, pollution prevention, and adaptation to climate change. The lion’s share of the proceeds is likely to be earmarked for clean transportation. These are focused on improvements to the national railway system and investments in railway infrastructure, promoting the shift towards a clean transportation system.

The first sterling-denominated green government bond

This first sovereign issue will be a shot in the arm for the sterling sustainable fixed income market. In April, the UK government set an ambitious target to cut emissions by 78% by 2035 compared to 1990 levels. The categories to which the UK bond’s proceeds will be allocated closely mirror those of the Spanish bond. The largest sum will also be allocated to financing clean transportation, for example, by funding plans to decarbonize the UK’s bus fleet with 4,000 new zero-emission buses.

The UK’s green-bond framework is also aligned with the Green Bond Principles but scores one grade lower on its contribution to sustainability than the Spanish framework (robust instead of advanced). In its second opinion, VE also indicates some areas for improvement, for example, in the categories relating to pollution prevention and control, energy efficiency, and living and natural resources. These three areas are relatively small in terms of the percentage of funds to be allocated. However, APG has raised some questions with the UK Treasury on the first of these categories where proceeds are earmarked for carbon capture, usage and storage. CCUS qualifies as an EU-taxonomy eligible sector and does have a role to play in the energy transition, but the UK green bond framework currently lacks clarity on industries and thresholds. As is the case for all our green bonds, APG will follow-up on this issue, critically assess the allocation report, which also contains material developments relating to eligible green expenditure, and ensure that the bond continues to fulfill the APG Guidelines for Green, Social and Sustainable bonds.

Green bonds are an effective tool to contribute to sustainability ambitions

One advantage of sovereign and government-related issues is that they give investors the opportunity to invest in large public infrastructure projects that have a direct impact; projects where it is more difficult to gain exposure via the corporate bond market, for example. As a result, these new green bond investments help contribute to our pension fund clients’ ambitions as long-term responsible investors. Both ABP and bpfBOUW, APG’s two largest clients, have set ambitious targets to increase the percentage of assets they invest in companies or projects that contribute to the UN’s Sustainable Development Goals (SDGs) by 2025.

Major player in the sustainable bond markets

APG is one of the world’s largest labeled bond investors. At the end of 2020, APG had invested €12.2 billion in labeled bonds (green, social and sustainability bonds) on behalf of our pension fund clients, €3.9 billion of which was in sovereign bonds. In late 2020, APG invested in the EU’s SURE inaugural social bond, the proceeds of which are being used to reduce the negative social impact of the Covid pandemic.

APG recently participated in the issue of a number of sustainability-linked bonds (SLBs). Companies issuing such bonds promise to meet predefined sustainability objectives; if they fail to do so, they need to pay investors extra interest. This offers flexibility, but also means investors must pay close attention to the sustainable objectives to prevent greenwashing. “We need to do our homework thoroughly to weigh the credibility and robustness of these deals.”

Tesco is one of the growing number of companies to have issued a ‘sustainability-linked bond’ (SLB) this year. In January, the British supermarket chain launched a bond that is linked to the company’s commitment to reduce greenhouse gas emissions. Concretely, Tesco pledges to cut its greenhouse gas emissions by 60% in 2025 (compared to 2015). If the company fails to meet this objective, investors will receive a coupon premium.    

Rapid growth

APG on behalf of its pension funds participated in Tesco’s €750 million SLB issuance, the first of its kind by a retailer. So far, SLBs remain a small part of the ESG fixed income landscape, relative to conventional labeled (green, social and sustainable) bonds. But SLB issuance is growing fast in 2021. According to Bloomberg, over €12 billion of SLBs has been issued this year to date, nearly 5% of total labeled bond issuance in that period.

So what is a sustainability-linked bond? SLBs allow the issuer to raise money for general purposes while promising that if they fail to meet specified sustainability targets they pay investors extra interest. Such key performance indicators (KPIs) are, for example, ‘percentage of recycled materials used by 2030’ or ‘reduction of greenhouse gas emissions by 2025’. This is different from conventional green bonds, where the money raised has to be spent on specific sustainability projects.

The instrument is still fairly new. In 2019, Enel issued the first SLB. The Italian power utility company targeted a 55% share of renewables in its power generation capacity by the end of 2021. Investors will receive 0.25% extra interest on their bond holdings if Enel fails to meet this commitment. In the run-up to the issue, Enel discussed the particular features of this bond with a select number of investors, including APG.

Prevent green washing

Since mid-2020, the number of SLB issuances has been steadily rising, an encouraging sign of momentum in this nascent market. The flexible structure of SLBs may offer an alternative for companies which – owing to the nature of their business – face difficulty in finding sufficient (or sufficiently large) sustainability projects to issue a green bond. Retail companies, like Tesco, are an example. SLBs allow such companies to finance their overall sustainability strategy without having to ringfence the money for particular green projects, e.g. building a solar power plant.

However, that same flexibility also means that investors have less concrete information on how the proceeds will be used and the potential impact they will have. “Flexibility in terms of use of proceeds combined with customized key performance indicators could make it easier for issuers to ‘sustainability wash’ and twist objectives to suit their needs,” says Joshua Linder, Credit analyst Fixed Income at APG. “For that reason, some investors are hesitant to support this new structure. But we see a lot of potential for SLBs, provided the integrity of the market is firmly maintained. We need to carefully scrutinize the KPIs to find out if they are ambitious and robust enough and ensure they can be properly verified and tracked.”

Tesco’s SLB is aligned to its newly introduced Sustainability Bond Framework which, in turn, follows the International Capital Market Association (ICMA) principles on SLBs, released in June 2020. The ICMA principles aim to further develop the key role that debt markets can play in funding and encouraging companies to contribute to sustainability. The principles pertain to setting KPIs, bond characteristics, reporting and independent verification.

Hybrid bond

Recently, APG also participated in a ‘hybrid’ bond issued by NextEra Energy. This bond, one of the first of its kind, combines features of both conventional green bonds and SLBs. NextEra Energy is a US utility holding company overseeing the largest investor-owned utility in the United States, which serves more than 11 million residents across the state of Florida. NextEra Energy also owns a clean energy business, which is the world's largest generator of wind and solar energy.

The bond structure follows the ICMA green bond principles and ringfences the bond’s proceeds for specific renewable energy projects. However, it is also stipulated that if the company fails to fully allocate the proceeds within two years, investors will receive a 0.25% interest premium until maturity. Also, projects must become operational within twelve months after issuance, or replacement projects must be selected that still meet the two year window, or be subject to the higher coupon rate.

“These features create an added layer of accountability compared to conventional green bonds,” says Craig Hauret, Senior Credit analyst Fixed Income at APG . “It ensures proceeds are allocated to eligible green projects in a timely fashion. Another attractive feature is the requirement that proceeds finance only wind and solar energy projects that will become operational after issuance. As opposed to some green bonds which allocate proceeds to ‘refinance’ projects that were completed two or three years ago.”

This is not to say there aren’t any drawbacks to the deal, notably the absence of a green bond framework which typically serves as the basis for project eligibility, as well as the lack of independent audit. “We have communicated that concern to the company,” says Hauret. “However, we have confidence in NextEra due to its long-time status as an ESG leader, combined with the transparency into the specific renewable energy projects being financed.”  

Upholding market integrity

APG is one of the world’s largest green, social and sustainable bond investors and an advocate of the labeled bond market, including SLBs. “We are, however, very selective in terms of which SLB deals we support in these early stages of market development in order to uphold market integrity,” says Linder. “For instance, we have seen SLB issuance where one of the sustainability targets had already been achieved. Clearly, such a bond does not meet our standards.”

The need for transparency and effective reporting practices is crucial for upholding the integrity and credibility of this rapidly growing market. To make (potential) issuers aware of our expectations and foster healthy development of the market, APG has published the Guidance on Sustainability-Linked Bonds.

APG’s fourth annual ‘Growing the US Corporate Green and Social Bond Market’ roundtable event for institutional investors, capital market underwriters and other stakeholders this year focused on SLBs.  “Growing the corporate labeled market in the US whilst upholding market integrity has been a key objective since we started these events, “ says Anna Pot, Head of Responsible Investments Americas at APG. “We have made substantial progress on activating our peers and partners across the industry to stimulate issuance of high-quality corporate labeled bonds.”

Current issues in the fields of the economy, (responsible) investment, pension and income: every week, an APG expert provides a clear answer to the question of the week. This time: Chief Economist Thijs Knaap on the risk of a (bursting) bubble due to the rising popularity of investing.

Investing is hot. In 2020, the number of Dutch people investing money increased by more than a quarter. That's the biggest increase since the 1990s. Many young, often inexperienced investors enter the stock market via smartphone apps from online brokers. And that is not without risk, according to some. Such as American top investor Jeremy Grantham. Earlier this year, he stated: "Private investors have created a historic bubble that is likely to burst before May." A bubble like at the turn of the century (the dot com bubble), when private investors massively invested in Internet companies, pushing stock prices to record highs. Until prices suddenly collapsed in 2000, which was followed by a slowdown of global economic growth. Although May is behind us, the question remains: is the chance of such a bursting bubble still real?

Permanent effects

Thijs Knaap is cautious with terms such as bubble. "Before you use a word like that, you have to understand what causes the increase in retail investors (private investors, ed.). It's down to three factors. First of all, the possibilities for private individuals to invest 'just for a while' have increased, both in terms of convenience (via simple and handy apps) and in terms of costs (in the Netherlands, you also have parties where you can conclude transactions free of charge). The second factor is the corona pandemic: people are at home, sometimes have money to spare and the time to do something with it. So they started investing. The third reason for the growing popularity is the low, sometimes even negative, interest rates. Since July 1, you have to pay some of the banks to be able to save. That drives people to the market. Some of these factors will remain with us for a while – or for good. That technology, that low-threshold investment, is not going away. The low savings interest is also likely to stay with us in the coming years. The demand for stocks therefore continues to grow. These are permanent effects, so in that respect there seems to be no question of a boom, with everyone getting out en masse after corona and never coming back. Structural changes explain a larger part of the movement."

Other types of investors

However, according to Knaap, that's not the end of the matter. "Individuals are different from large investors. They tend to take more risks. They often buy individual stocks, for instance, and don't have a diversified portfolio. And call options are popular, which quickly increase in value when the stock goes up, but are worth nothing when the stock goes down. When you get these kinds of investors, all kinds of things happen. Especially in a time when people find each other on Internet forums where they can arrange to buy stocks of a particular company en masse to raise the price. Even if the company isn't really worth it. It happened this year with the loss-making GameStop and the bankrupt Hertz. By joining forces, hundreds of thousands of investors managed to increase the price to an extreme. That's problematic, and it's not even permitted. In fact, it's market fraud, but you try and do something about it with some many people behind it."

Continued confidence

Individuals egging each other on, stock prices being pushed up when the company doesn't seem worth much; are these the typical bubbles we're concerned about? "The developments surrounding these investments – also referred to as meme stocks – do indeed have the characteristics of a bubble", says Knaap. "But that doesn't entirely hold true. During the dot com crisis, stock prices eventually plummeted completely when a lot of people got out. At both GameStop and Hertz, the value of the stock is still and consistently much higher than it was in the beginning. So people seem to have real confidence that the company is doing something good with it. And the suddenly low-cost financing also gives the company the opportunity to reinvent itself."

Blow up the market

Back to the question: due to the growing popularity of investing, are we heading (again) towards a bubble that is about to burst? Knaap doesn't think so. Although he emphasizes that you can never be 100% certain. "Sure, in the examples given and in some sectors, private individuals can drive up the price. But only for companies that are relatively small. They only form a limited part of the stock exchange. You don't see it in the rest of the market. It's much harder to blow up the entire market."

Current issues in the fields of economics, (sustainable) investment, pensions and income: every week an APG expert gives a clear answer to the question of the week. This time: chief economist Thijs Knaap, about the economic consequences of the worldwide shortage of computer chips.

“The simplest and most immediate effect is that chip machine manufacturers are doing well. As of the end of October, ASML’s share price has now risen by 85 percent, while the AEX has risen ‘only’ 37 percent over that period. But of course, this will not continue. For an investor in chip machine manufacturers, it is helpful to know that the demand for chip machines has some of the same characteristics as the hog cycle. When the demand for pork chops - and therefore the price - is high, hog farmers expand. On the other hand, when that new meat comes onto the market, there is immediate excess, which then brings the price down. The same is true of the market for chip machines. As with pig farmers, it takes a while for new supply to be created. This carries the risk that in a few years there will be a surplus of chip machines and chips. An investor in chip machine manufacturers must therefore know exactly when to stop.”

Bottleneck
The indirect effect of the chip shortage is much greater, Knaap explains. “You can’t think of anything without a chip in it nowadays. The shortage is a well-known bottleneck for car manufacturers, but it is currently affecting the entire supply industry. When it doesn’t get enough chips, it also leads to a shortage of other parts. There is a risk that the Western economies will stall because of this shortage.

Everything is expensive now, not only chips but also oil. If the prices of many components and semi-finished goods go up, in the worst-case scenario a situation similar to the oil shocks of the 1970s will arise. The big question hanging over the market is: will it lead to inflation? That is the fear of many investors. Central banks are now pursuing a loose monetary policy by buying up government bonds and corporate bonds, among other things. This is good for investors, because it pushes up the prices of bonds and shares. But if inflation does occur, central banks lose the excuse to pursue this broad monetary policy. They must then stop buying bonds and in that case the mechanism works the other way round. The chance for stock markets to fall increases and, because the current monetary policy has been pursued since 2008, you could even see a major correction. It may be a bit of a shock to investors.”

Crypto currency
The main cause of the worldwide shortage of chips was the extremely high demand caused by the Covid-19 pandemic. Working from home, and the increased demand for game consoles in particular, played a role in this. Still, according to Knaap, that’s not the whole story. “The demand for chips has also increased due to the increased popularity of crypto currencies. A lot of chips are needed to mine bitcoins. And there is also a lot going on on the supply side. In the early 2020s, many companies in Asia were at a standstill due to lockdowns. You can still see that in the availability of goods, including chips. Plus, Covid-19 made us ask ourselves whether we want to be so dependent on foreign producers for certain products - mouthguards, medical equipment, and so on. The answer is no. There will be more production in Europe and the US again, rather than in China. That’s good for our independence. But it does mean that everything will become more expensive.”

APG has published a guidance document that outlines its expectations about Covid 19-related expenses by companies and their potential eligibility in social or sustainable bonds.

An increasing number of banks, companies and government-related agencies have recently issued so-called Covid-19 response bonds. The proceeds of these are used, among other things, to fund emergency health measures and support packages for small and medium-sized enterprises. APG, on behalf of its pension fund clients, has since late March invested over €350 million in Covid-19 response bonds.

“For corporate issuers it is not always clear which Covid 19-related activities should qualify for labeled bond issuance”, says Joshua Linder, credit analyst Fixed Income at APG Asset Management. “To remove some of the uncertainty, we have devloped a guidance document that outlines how we think about measures in the context of social and sustainable bond issuance. We think it is helpful to identify examples of activities across sectors that could potentially qualify.”

APG’s goal is to share the guidelines with its counterparts to encourage greater issuance while upholding the integrity of the market. As a leading long-term responsible investor, APG actively contributes to initiatives aimed at expanding the size and scope of the green bond market. At the same time, we continue to emphasize high-quality standards and transparency in support of responsible, sustainable growth.

To combat the corona pandemic and its socio-economic impact, APG on behalf of its pension fund clients has invested nearly € 90 million in Covid-19 response bonds. The proceeds of these ‘corona bonds’ are used, among other things, to finance emergency health measures and support packages for small and medium-sized enterprises.

Since late March, APG – on behalf of ABP, bpfBOUW, SPW and PPF APG – has participated in the issue of corona bonds by the Nordic Investment Bank (€16 million), European Investment Bank (€39 million) and Council of Europe Development Bank (€34 million). In all three cases, investor demand considerably exceeded the amount of the issue.

Emergency measures

The proceeds of corona bonds are earmarked for financing of a range of emergency measures, including expansion of healthcare services, support to small and medium-sized enterprises (SME’s), and a temporary increase in social security expenditures. In some cases, corona bonds also provide for financial help to local governments and medical equipment and healthcare companies facing unprecedented demand due to the pandemic.  

All three bonds are issued by reputable institutions rated AAA, the highest credit rating. The credit risk associated with these bonds is comparable to the risk of Dutch sovereign bonds, while the coupon rate is slightly higher compared to similar bonds. 

Responsible investor

It is a good that institutions issue special corona bonds, says Oscar Jansen, Credit specialist at APG Asset Management. “The societal and economic impact of the virus is huge and a lot of money is needed to fight the crisis. As a responsible investor, we want to play an active role in this.”

APG is one of the world’s largest green bond investors. These are bonds issued by companies or (semi-) governments to finance green, social or sustainable projects. By the end of 2019, we had invested over €9 billion in green, sustainable and social bonds. These investments also contribute to our clients’ ambitions in the area of sustainable investment, in particular the aims of ABP (20% of AUM in the Sustainable Development Goals by 2025) and bpfBOUW (€12 million by the end of 2020).

Cooperation with E Fund offers access to interesting market

APG has participated in the landmark first-ever SDG-linked USD bond deal, issued by Enel. APG does this on behalf of its pension fund clients ABP, bpfBOUW and SPW. Being the largest electric utility in Italy and one of the largest in the world, Enel is a big renewables developer with power assets across the globe.

The new bond takes sustainable financing one step further than green or sustainability bonds. Whereas the proceeds of the latter are used to fund green or social projects, the Enel bond is the first to be directly linked to the United Nations Sustainable Development Goals (SDGs). These goals - 17 in total - aim to achieve a better and more sustainable future for all and address the major global challenges, including poverty, inequality and climate change.

Enel has promised investors that 55% of its electricity generation capacity will be renewable by the end of 2021. This contributes to SDG 7: Affordable and clean energy. If Enel is unable to meet this commitment, investors will receive 0.25% extra interest on their bond holdings. As of June 30, 2019, 46% of Enel’s capacity was classified as renewable.

Three times oversubscribed
APG’s participation in the deal was well-received by the company and the banks involved in marketing the deal, as they looked for participation by credible, sustainability-oriented investors. Given this context, they view APG as an anchor investor. Although the deal was almost three times oversubscribed, APG received its full allocation of USD 50 million. This highlights APG’s standing in the market as a leading responsible investor as well as its long lasting relationship with Enel.

The deal also demonstrates APG’s active role in the sustainable finance market. Over the last year, APG’s credit team continuously engaged with parties involved on how to structure the transaction. APG was one of the investors Enel elected to meet with and discuss which particular features of an SDG-linked bond APG and others investors would support.

Signal
In the future, Enel hopes more of its bonds will contain these types of SDG commitments, perhaps also related to other SDG's. This way, Enel signals to the investment community that they are a sustainable company and serious about their commitment to advancing the UN SDGs. Enel hopes that this will catch on in the market place and encourage other firms to issue similar bonds.

APG views the issue of the first Dutch sovereign green bond as indication of the market’s increasing maturity. As a leading long-term responsible investor, we actively contribute to initiatives aimed at expanding the size and scope of this market.

Today, APG announced that it has invested € nearly 250 million in the green Dutch sovereign bond on behalf of its pension fund clients. The investment contributes to our clients’ ambitions in the area of sustainable investment, in particular the aim of ABP and bpfBOUW to double investments aligned with the UN Sustainable Development Goals (SDGs) by 2020.

Three focus areas
APG’s approach to investing in green, social, and sustainable bonds (‘green bonds’) focuses on quantity, quality and engagement, says Oscar Jansen, senior portfolio manager Credits. “We think about how to grow our allocation in the context of risk/return requirements and limited supply, we establish clear internal guidelines to ensure we uphold the ESG quality of our investments, and we promote greater issuance and enhanced market standards.”

Concurrently with the Dutch sovereign green bond issuance, APG today published its Guidelines for Green, Social and Sustainable Bonds. Jansen: “Issuers ask for guidance on what meets investor green and social standards and requirements. Clearly communicating our expectations can help alleviate issuer concerns about the market’s response to a potential green bond program and thereby serve as a further market stimulus.”

Developing the sovereign market
The growth of sovereign issuance of green bonds represents another potential avenue for growing our green bond allocation. In addition to our engagements with corporate green bond issuers, APG also articulates its expectations on green finance in dialogue with sovereign issuers. On this theme, APG together with the World Bank recently organized a workshop in Washington DC. We enter into dialogue with sovereigns about progress on the UN Sustainable Development Goals and Paris Climate Agreement and the potential role of green bonds in financing these transitions.

Leading green bond investor
APG is one of the world’s largest green bond investors. By the end of 2018, we had invested over € 6.8 billion in 142 green, sustainable and social bonds on behalf of our clients ABP, bpfBOUW, SPW and PPF. APG is a member of the Climate Bond Initiative and is a key contributor to several industry initiatives. We also give feedback to rating agencies on their green bond assessment methodologies and have actively contributed to the proposed EU Green Bond Standard.

Investor demand for corporate green and social bonds continues to be high, but the US market remains constrained by limited supply compared to Europe. In March, APG’s New York office for the second time hosted a group of institutional investors and underwriters to exchange views on the obstacles to corporate issuance of green bonds and ways to overcome them, this time with a specific focus on the food and beverage sectors.