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.