Stockholm (NordSIP) – At last week’s Impact Summit hosted online by Phenix Capital, Peter Lööw (Pictured, left-lower corner), Head of Responsible Investment at Alecta, a Swedish pension provider managing US$125 billion in assets, discussed the dangers posed by increasing green bond premia.
The comments were made during the online summit’s panel on “Mitigating and Adapting to Climate Change”, which discussed how institutional investors are investing to mitigate climate change and finance adaptations to the environment of the future.
“We have a [green bond] portfolio of US$6 billion, which is a large share of our overall portfolio. The problem is that we are seeing very significant demand for green bonds in the Nordics, which pushes the limit on the pricing of those bonds. This is causing us to opt-out of some opportunities these days because they are just too expensive,” Lööw says.
“We don’t have the mandate to pay that extra premium – the greenium,” Lööw says, referring to the spread between the vanilla bond and its corresponding green bond of equivalent maturity. According to him, Alecta wants to support the green bond market and the opportunity it gives investors to transparently see how their investments are being used while facilitating detailed environmental impact reporting. “The problem is how much you should pay for that. It’s acceptable to pay perhaps one or two basis points (bps), but we have seen instances of 10bps and 20bps. That’s a little bit too much for us.”
According to Lööw, the problem is segmented across the market. While corporates treasurers are keen to take advantage of particularly favourable funding terms, SSA green bond issuers are much keener to price on the existing curve.
“I’m hoping it’s an issue that supply can fix,” he said noting that the present level of demand is likely to make the issuance of green bonds a standardised and more approachable funding channel for an increasing number of borrowers.
The rest of the discussion focused on the strategies that the remaining participants used to fulfil their climate change investment mandate. Other panellists included Holger Frey, Senior Portfolio Manager at Credit Suisse, Alan Hsu, Portfolio Manager and Global Industry Analyst at Wellington Management, Jessica Matthews, Head of Sustainable Investing at J.P. Morgan and Andrew Pidden, Head of Sustainable Investments at DWS Group.
The event was recorded and interested readers can watch the entire panel on YouTube.
Image courtesy of Phenix Capital