Giant Norwegian government fund sets up separate green bond mandate

Move comes as environmental mandates return 5% in 2014

The giant Norwegian Government Pension Fund has set up a separate mandate for green bonds in a move which sees it evolve its environmental investments on from mostly listed equities.

“A separate mandate for investments in green bonds was established in 2014,” says Norges Bank Investment Management, which manages the massive NOK6.8trn (€791bn) fund, in its new Responsible Investment report, now published in English. All environmental bond investments were managed internally at the end of the year, it added.

To date, the fund has mostly put its environmental investment allocation, currently at NOK42bn, towards listed equities.

Given that the fund has an instruction from the government to put up to NOK50bn towards green investments, it suggests there could be considerable room for expansion into green bonds.

Norges has not to date made a lot of noise as a buyer of green bonds, a market that grew last year to $36.6bn and which industry group the Climate Bonds Initiative reckons could grow to $100bn this year.It comes as the fund’s environmental equities mandates returned 5.03% in the 12 months to the end of December 2014.

In the three years to the end of last year, the mandates have returned 17.29%. The portfolio was invested in 220 companies and has produced an annualized return of 3.2% from inception in 2009.

The fund also revealed that the average greenhouse gas emissions intensity in its equity portfolio fell between 2013 and 2014. It conducted an analysis of the emissions from the companies in its equity portfolio last year and found that the overall emission intensity was lower than for the fund’s equity benchmark index.
The fund added: “We performed 917 company assessments in 2014, of which 415 were related to climate change management, 269 to water management and 233 to children’s rights. The companies assessed accounted for 25% of the equity portfolio’s market value at the end of the year.”

Meanwhile, ACTIAM, the €46.8bn fund manager formerly known as SNS Asset Management, has become a Climate Bonds Partner and confirmed a €1bn commitment to green bonds.