Run on first EU corona bond. This was the headline in the Financieel Dagblad on Wednesday, October 21. APG was one of the buyers of this “social bond”. Why did APG participate in this? What is so attractive about social or green bonds? Sandor Steverink, Head of Treasuries at APG, about return versus sustainability, the increasing importance of sustainable bonds and the rationale behind investing at a negative interest rate.
With its SURE program (the term stands for Support to mitigate Unemployment Risks in an Emergency) the EU wants to pick up a total of 100 billion Euros in loans, to issue to the member states. The goal of this is to support them in their efforts to keep companies and their employees working during the corona crisis. The first batch of these, valued at 17 billion Euros, was issued in October. The buyers of these “social” bonds, including APG, were lined up: the issuance was oversubscribed as many as fourteen times; a record.
APG ended up with 170 million Euro’s worth. Happy?
“Meh. We had registered for about 500 million Euros. Usually, you end up getting 50 to 80 percent of that. This time it was only 30 percent. Considering the enormous oversubscription, that percentage is not too bad: parties that do long-term investments, like us, were assigned relatively more bonds, because they are not going to put those bonds back onto the market right away.”
Why is APG investing in these bonds anyway?
“Because they are socially responsible. In addition, we have also tested them – like we do all bonds – for these factors: return, risk and costs. The results told us that this was an interesting investment. And we were not the only ones who thought this, as shown by the massive interest. I had expected that there would be a lot of interest; these social bonds provide relatively better returns than state bonds from triple A-rated countries like the Netherlands and Germany. They are very tradable, and they are safe if we look at the credit risk: the EU won’t topple anytime soon. Plus, the EU has created a sort of loan-loss reserve for this SURE program that has 25 billion Euros in it; a guarantee that provides investors with extra security.”
How important are the green and social bonds to APG?
“They are becoming more and more important to us and to our clients. We have now invested some 9 billion Euros in green bonds, compared to less than two billion in 2016. And 1 billion Euros in social bonds. Our investments are based on the United Nations' Sustainable Development Goals. Investing in green and social bonds - both of which come under the heading of sustainable bonds - fits in well with that. And we use our own classification system to check whether the claim of social or green is correct.”
Does every major investor use its own sustainability test?
“No, most institutional investors are satisfied with the stamp that the issuing party puts on them, based on the general guidelines and principles. APG started developing its own sustainable investment department, as early as 2007. That department has an enormous amount of knowledge by now. Using our own guidelines, we can therefore accurately measure the extent to which an investment is really sustainable.”
Do APG's clients demand that you invest sustainably as much as possible? Or do they mainly look at returns?
“Both. We have on-going close consultations with the pension funds that we invest for. We want to be at the forefront of sustainable investment because, just like our clients, we can see the benefits of it. They want an increasing portion of their pension assets to be invested responsibly, to be invested with impact. In 2025, for example, ABP aims to have 20 percent of its assets invested in Sustainable Development Goals, including these SURE bonds. But that could just as well be sustainable equities, sustainable social housing or a wind farm.”