Important role for investors like APG
The European Union (EU) is going to issue green and social bonds on a large scale to pull the European economy out of the corona hole. At the same time, the EU is taking the opportunity to make the economy structurally sustainable. But these bonds will have to meet specific criteria, experts stated during a webinar organized by APG.
The EU is going to borrow a total of 750 billion Euros in the next few years, for the recovery and greening of the European economy. A big part of this – about 350 billion Euros – will be retrieved through the issuance of green and social bonds, Gert Jan Koopman, director-general Budget of the European Commission, said to an audience of European investors, officials, regulators and central bankers.
The financing of the first part of the recovery program will start in October with the issuance of maximum 100 billion Euros in social bonds under the so-called SURE Program. Next year, the EU will continue to finance the European Recovery Fund, part of which will be issued through green bonds. The revenue from this will be used to soften the economic consequences of the corona outbreak, for example by financing companies and supporting employees who have lost their jobs.
Investors cautiously optimistic
European investment experts from ING, the French AXA Group, the Danish pension fund ATP, ABP and APG are being cautiously optimistic. The issuance of hundreds of billions of green and social bonds will provide a significant boost to the further development of this market. “European green and social bonds are important to us and to our clients, because they fit in well with the sustainable and responsible investment policy,” Sandor Steverink, Head of Treasuries at APG, states. “With these investments in these types of bonds, we want to contribute to the Sustainable Development goals.”
Geraldine Leegwater, ABP board member, shares that conclusion, but also states that green does not mean that returns will be less important. “The great demand for green bonds will also drive the price up. That premium will have to be recouped,” the ABP director says. “We evaluate green and social bonds not only for sustainability, but also for risk, return and costs.” At the end of 2019, ABP had 7.6 billion Euros invested in green, social and sustainable bonds.
Develop a standard
And then there is the question of what qualifies a bond as being “green” or “social”. There is no clear answer to that question yet, the experts conclude. According to Pascal Christory, Chief Investment Officer of AXA Group, institutional asset owners need to play a more pivotal role in setting the standards for the green bonds they invest in. “This way we can ensure these investments match our long-term ESG and risk-return objectives.”
APG has already developed guidelines for green and social bonds, says Steverink. They clarify what our expectations are for companies, governments and agencies that are considering issuing green and social bonds.