Stockholm (NordSIP) – Handelsbanken has launched a new fund exclusively dedicated to social, sustainable and green global bonds. We were very excited to meet with Karin Askelöf, Head of Responsible Investment, and Karin Göransson, the fund’s Portfolio Manager, to discuss Handelsbanken’s view of impact investments.
The new fund, Handelsbanken Hållbar Global Obligation, was launched at the beginning of 2019. The fund managers were motivated by a desire to develop a strategy focused on sustainable opportunities. “The demand for this type of products was definitely there, but the decision was part of an ongoing internal dialogue,” says Askelöf. “We have seen over time sustainable investing maturing from exclusions to investing in solutions, following the launch of agenda 2030 and the UN Sustainable Development Goals (SDGs). As a basis for all of our funds we have an exclusion strategy but are focusing on investments in solutions and future-proof companies. Sustainability is a structural theme that delivers long-term growth and returns across almost all sectors, so the timing was right. We are entrusted with our clients’ money and we are expected to deliver financial returns while taking our responsibility and also contributing to a sustainable future. As an active equity and fixed income manager we are well positioned to identify these companies.”
“The bond market has been on a journey over the last ten years. By the end of 2018 we had already invested SEK 8 billion in green bonds through other funds, but with this fund, we target global impact. We have a mandate to explore different themes in the market,” adds Göransson. The fund’s mandate covers all countries and all currencies. Currency risk is limited to a maximum of 2% of the fund’s value. The investments target a seven-year maturity.
To Göransson, the additionality of the fund’s investments relies on the underlying projects. “We buy bonds with a clear theme. We make sure that the funds target the right projects. If a corporate is going to issue a green bond, they have to tell us what the proceeds go towards. They cannot spend the money in whatever way they want. The additionality is in the fact that I know exactly what the money will be used for and what the impact will be. I think that’s the most important for the fund.”
Askelöf also highlights the added value of the extensive scope of the fund. “The mandate of the fund is broader than just green bonds. It also includes sustainability and social bonds,” she says. “Hopefully we will be able to invest in projects that serve other causes than just climate. That is something we are very keen on.”
The actively managed fund’s financial performance is benchmarked against a global index, Solactive Global Green and Social Bond Index. The performance of the fund will also have to reflect the proposed and actual sustainability impact of the projects the bonds are funding.
“A large part of setting up the fund has been to set up a robust impact assessment process. We start with the traditional company research, with integrated ESG analysis at the company level. A lot of the measurability is set out in the sustainable bond framework and is complemented by the impact analysis and second opinions,” says Askelöf. “It is a journey. We start with the ESG analysis of the company, then we look at the global credit and macro environment and finally, we consider the financing and use of proceeds of this specific green or sustainable bond,” adds Göransson.
“We are developing our own assessment scorecard,” explain Göransson. “One of the challenges of measurability for reporting is how to aggregate impact given that there are different KPIs and different measurement standards across frameworks. Our plan is to focus on a narrow set of measures to send a clear and focused message regarding the projects’ progress,” Askelöf elaborates.
“We need to be able to live with the bond until it has matured. It is a lesson for me to go back after a year, when the issuer publishes its report, and evaluate whether the money was spent as planned,” Göransson continues. As the market matures, it adapts when confronted with unforeseen situations, according to Askelöf. “There were a few cases where a green bond was issued and then the project was cancelled”, she recalls. Göransson elaborates with an example. “This is what happened with the airport in Mexico City, which was funded through a green bond. Once the president cancelled the project and the funds from the bond could no longer go towards building the airport, Moody’s downgraded the security. This situation is important for market development and maturity.”
Two weeks in, the fund was already worth SEK 200 million, despite limited secondary market liquidity. “It is hard to find sustainable bonds given that the supply is somewhat limited in the secondary market. You need to be there when they are issued. Inevitably, we have a clear Nordic tilt in the beginning, as we go along the global exposure will increase,” explains Göransson. She goes on to describe some of her investments. “It has been easy to find real estate. We have some municipalities and some corporates too, such as telecoms. We are invested in both Verizon and Telefonica bonds, as well as StoraEnso and Leaseplan.”
Göransson concludes by looking forward to the opportunities the fund’s far-reaching mandate can create. “Telefonica has, in its framework, the possibility of issuing social bonds, so we are looking forward to that. The fund is still small, so we have to wait and see what comes to the market.”
Picture © NordSIP