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Sweden’s AP2 expands green bond portfolio by 80% in year, says market still in infancy

Coincides with first ever green bond from a Chinese bank

Andra AP-fonden (AP2), the SEK294bn (€31.7bn) Swedish buffer pension fund, says its green bond portfolio has grown to SEK3.4bn as at the end of the first half of 2015 – an increase of almost 80% on the previous year.
It comes amid a major new green bond from the Agricultural Bank of China and reports that the Bangladesh central bank is looking at putting some of its foreign exchange reserves into the sector – all on the back of a huge US$1.25bn corporate green bond from Électricité de France last week.
Gothenburg-based AP2 says green bonds are a way for it to implement sustainability issues with fixed income. The fund doesn’t currently have a specific exposure to green bonds and they are managed together with ‘standard’ fixed income investments.

“We don’t compromise the yield requirement for green bonds,” says Portfolio Manager Lars Lindblom in AP2’s new Sustainability and Corporate Governance Report. “However we would rather choose a green bond than its equivalent.”

The fund has played an active role in helping to develop the market and admits that borrowers often consult it about whether to issue green bonds. And it adds that as the percentage of such bonds rises in its portfolio, so does the need for monitoring. Last month, AP2 announced
that its annual prize for finance and sustainability went to students Anna Adlarson and My Hammarström for their essay on whether green bonds contribute to sustainable development.The fund also made its first foray into social bonds this year via a $20m investment in the ‘EYE’ social bond tackling youth poverty issued by the Inter-American Development Bank. Lindblom says the market for sustainable bonds is “probably just in its infancy” and that it’s important to get into the market early.

“We would rather choose a green bond than its equivalent”

It comes as the giant Agricultural Bank of China made its inaugural green bond issuance – comprising around $1bn in dual currency bonds that will be listed on the London Stock Exchange. Asian investors took 94% while the balance went to European investors, Reuters reported. Banks took 82% while funds took 12% and private banks 6%. Joint global coordinators were Agricultural Bank of China International, Barclays, HSBC and J.P. Morgan.

Industry group the Climate Bonds Initiative has partnered with the London exchange and the Peoples Bank of China (PBoC) Green Finance Committee to host a green bond conference in London on October 23. Elsewhere, Bangladesh Bank Governor Atiur Rahman has been quoted saying the central bank plans to invest some of its foreign exchange reserves in green bonds to help develop the market.