NN Investment Partners has launched the first sovereign bond fund aiming to have a positive environmental impact through the projects it finances.
“It’s a really innovative product and I think it’s the first fund that really tries to do something like this with government bonds and impact,” said Bram Bos, lead portfolio manager of green bond strategy at NNIP.
“It’s also scalable and liquid and I think there are loads of investors that have got government bonds on their balance sheets and want to do something with ESG but don’t really know how to. So, we are really trying to cater to that.”
The fund complements NNIP's existing range of green bond funds and will apply the same investment approach, but with a specific focus on treasury and government-related bonds.
“Government-related bonds means supranationals, local governments and also agencies. Issuers that are owned by governments," said Bos.
"So it is a little bit more broad than treasuries but I think by combining them, government bonds and government-related bonds in one fund, I think it is a very good combination, which can replace regular government bonds in a portfolio.”
Global green bond issuance this year could increase by 50% from last year to €400bn, according to NNIP. This would put the total market above the €1trn mark and the asset manager expects the global green bond market to grow to €2trn by the end of 2023.
While the rapid increase is a welcome development, its has raised questions regarding the classification of green bonds.
“First of all we do all the green bond analysis in-house ourselves, we never just rely on the label the issuer has put on the bonds themselves," said Bos.
"Secondly, we also really believe the greenness of a bond is not only determined by how the money is being used, but also by the broader strategy of the issuer."
The launch of the fund comes just five years after NNIP launched its first dedicated green bond fund and only one year after launching a corporate green bond fund.
Custom benchmark
Given the unique nature of the fund there is not a readily available benchmark against which its performance could be measured, according to Bos.
“We looked at the Bloomberg MSCI Green Bond Index, which I think is the most commonly used for green bond funds in the market," he said.
"From that index we have taken treasury and government-related sectors and combined them in a customised index. So, it’s not a standard index, the government and government-related sectors have been combined to form a specific benchmark for this fund."