Stockholm (NordSIP) – On January 22, NordSIP caught up with part of the team behind the largest green bond fund in the world, Amundi’s Emerging Green One (EGO) fund, which closed last year with US$ 1.42 billion in assets. Jean-Marie Masse, Chief Investment Officer at the International Finance Corporation (IFC), the cornerstone investor in the fund, joined Maxim Vydrine, Co-Head of EM Credit and High Yield and Timothée Jaulin, Head of Supranational Entities at Amundi Asset Management to report on the first-year progress.
The Nordics and Sweden, in particular, supported the fund’s launch last year and represents a key market for the project. Alecta, AP3 and AP4 figured on the list of key commitments. “Stockholm is a hotspot for us,” starts IFC’s Jean-Marie Masse, Chief Investment Officer, Financial Institutions Group. “Not only do we have many investors here, but we also consider Stockholm to be a centre of excellence for sustainable finance and green bonds in particular.” The global cumulative green bond issuance of US$ 500 billion represent only 0.5% of the US$ 100 trillion global bond market, but in Sweden green bonds represented 12% of all bond issues in 2018, up from 6% in 2017. “Both issuers and investors support the green bond market here,” Masse says. “The lessons they have learned are crucial for the rest of the market, and they should be disseminated.”
The educational aspect of the project is vital for the fund to achieve its primary goal of improving access to financing for green projects in emerging markets. “On day one, we were fully invested in emerging market bonds, but we set a target of seven years to swap those initial positions into 100% green bonds,” explains Vydrine, who co-manages the fund. “We have thought of several ways to stimulate the growth we need to reach this target.”
“When IFC started to conceptualise this project,” Jaulin explains, “the idea was to take a holistic approach to stimulate the green bond market. It was clear that the demand side, represented by Amundi, which co-designed the fund with the IFC, and the supply side, represented by all the local issuers, should grow the market together. From the very start, the project included a technical assistance program with activities to support issuers in Emerging markets, financed by donor money in Switzerland, Luxembourg and Sweden. The Swedish International Development Cooperation Agency (Sida) is part of this group. According to Jaulin, the first cohort of bankers trained in Stockholm will complete a program led by the Stockholm School in Economics in June this year. Similar training will take place twice a year for the duration of the fund’s deployment period. Workshops will also take place on the ground on an ongoing basis.
So far, the number of green bond issues has been sufficient to meet the managers’ appetite, and the fund has already switched at least 16% of its positions to green bonds. “We could have participated in a higher number of issues. However, the green bond market has grown stronger in some countries than in others, and we believe that it is crucial to keep an adequate geographical diversification,” explains Vydrine.
In markets like India or China, green bonds have become more popular recently, as they represent an opportunity to access a diversified pool of capital,” Vydrine continues. “Here in Europe, we see that many investors that are interested in sustainable investing are often too risk-averse to look at emerging markets, and conversely, emerging market investors are not particularly interested in sustainability. What is interesting for the former, is that EGO offers additional risk protection, as junior tranches will absorb potential losses in case of default. Emerging markets are the place where European investors can find the yield they can’t obtain at home, and we provide the opportunity to do so in a sustainable way.”
“We believe that this project in the first one to show how green bonds can supply real additionality,” says Jaulin. “There is an opportunity not only to convert both financial institutions and individual companies to undertaking green projects that they wouldn’t have started without the capital they will now have access to, but to engage them to start shifting the way the do business towards more sustainable practices.”
“Opportunities in real estate provide a perfect example,” offers Masse. “Building green buildings is a win-win, as it will save costs in the future from energy and water, and increase collateral value to lenders relative to bon green buildings. Green bonds can provide the impulse to consider financing such projects. Often in emerging markets, the companies find it challenging to attract and retain talented employees, and signaling corporate commitment to sustainable financing via green bond issuances is considered a powerful tool by some green bond issuers. We have also met companies that find that issuing green bonds is a way to get their stock included in ESG indexes. We are amazed to see how our project can affect not only a corporate culture but also the entire capital structure.”
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