APG invests €360 million in Spanish and UK green sovereign bonds

Published on: 22 September 2021

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.



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.