I have been watching with some interest the growth of ‘green’ bonds and seeing an increasing awareness by investors of this form of socially responsible investment. Although there are no dedicated green bond funds in New Zealand, the green bond market has taken off in recent years in line with investors’ growing commitment to supporting environmentally friendly investments.
So what exactly are green bonds? In simple terms, they are bonds created to fund projects that have positive environmental and/or climate benefits. One of the issues is that there is no legal definition of a green bond and no specific legal requirement is necessary for issuing green bonds. However, issuers can voluntarily comply with published standards such as the Green Bond Principles which provide clear guidelines for what can be labelled as a green bond.
In practice, it is how proceeds are used that sets a green bond apart from other bonds – the proceeds must be applied for a specific green purpose. For instance, the type of projects funded by green bonds could include projects related to clean water, renewable energy, energy efficiency, reducing greenhouse gas emissions, or mitigation of climate change impacts.
Though the concept is only about a decade old, green bonds are becoming a credible asset class as more and more asset managers increase their allocation to them. AMP Capital is part of this movement, with one of the underlying managers in our Hedged Global Fixed Interest Fund, Morgan Stanley Investment Management, recently introducing green bonds into the portfolio. This Fund has four green bonds which span a range of projects, including:
• renewable energy generation, eg solar and wind power
• greenhouse gas reduction
• energy efficiency
• waste management efficiency and recycling
• waste water treatment
• wind farm development and wind repowering initiatives.
Green bonds are a small part of the overall bond market, but the market for green or climate-focused investments is likely to continue to grow as climate change raises the urgency for renewable energy and low carbon industries. For this reason I expect the allocation to green and sustainable bonds will increasingly become an important part of our fixed income portfolios. It’s also a demonstration of AMP Capital’s commitment to incorporating environment, social and governance (ESG) principles into investment decision-making and delivering on the commitments made as a signatory to the Principles for Responsible Investment (PRI) and member of the Institutional Investors Group on Climate Change (IIGCC).
To find out more about our investment in green bonds refer to the latest RIL Engagement Report 2018, or to learn more about responsible investing visit this section of our site.
This blog post has been prepared to provide general information and does not constitute 'financial advice' for the purposes of the Financial Advisors Act 2008 (Act). An individual investor should, before making any investment decisions, consider the information available in the relevant Product Disclosure Statement and seek professional advice. While every care has been taken in the preparation of this document, AMP Capital Investors (New Zealand) Limited and the AMP Group (together, 'AMP') make no guarantee that the information supplied is accurate, complete or timely and do not make any warranties or representations in respect of results gained from its use. The information is not intended to infer that current or past returns are indicative of future returns. The views expressed are those of the author and do not necessarily reflect those of AMP. These views are subject to change depending on market conditions and other factors.