Five years after launching its first green bond fund, NN Investment Partners (NN IP) has reached EUR4 billion in assets under management (AuM) across its dedicated green bond strategies.
This milestone reinforces NN IP’s conviction that green bonds are an attractive proposition for fixed income investors seeking to make a positive environmental impact. In less than a decade, green bonds have transformed from being a niche impact market into one of the most dynamic segments in the mainstream market.
Based on this growing momentum, NN IP identifies three drivers underlying the growing interest in green bonds among institutional investors. First, investors’ decision-making is increasingly driven by the wish to tackle climate change. Second, the market’s growth both in the corporate and sovereign spaces is facilitating sector diversification. More industrial, communication and technology companies are turning to the green bond market to finance green projects, in what was traditionally the domain of the financials and utilities sectors. Finally, investors are becoming more aware of the performance benefits of green versus non-green bonds and the opportunities to use them to replace at least a part of their non-green credit allocation. This development is adding to the belief that every fixed income investor can finance positive change and generate solid financial performance.
The strong growth path of the green bonds market in the second half of 2020 has continued in 2021. Green bonds issuance hit a new monthly high in March of EUR58 billion, easily breaking the previous September 2020 record of EUR44 billion.
Bram Bos, Lead Portfolio Manager Green Bonds at NN Investment Partners, says: “I’m proud to see the ongoing and increasing interest in our green bonds strategies. Since we first became active in the green bond market in 2014, we have believed that allocating to it enables investors to make an environmental impact without sacrificing liquidity and returns. Over the years we have developed and fine-tuned our approach as the market has grown and become more sophisticated, but that core belief remains unchanged. While it was already possible for fixed income investors to replace part of their credit exposure with green bonds, today’s market gives them far more scope to do this than it did even one or two years ago.”
The market continues to diversify rapidly, with new labels entering it such as transition bonds, sustainability-linked bonds and social bonds. This provides investors with both opportunities and a new set of challenges. While green bonds are highly focused on making environmental impact, attention towards social issues is rising. NN IP believes social bonds will provide future opportunities for investors to contribute to tackling societal issues using product structures that are closely aligned with green bonds.
Douglas Farquhar, Client Portfolio Manager Green Bond at NN Investment Partners, adds: “At NN IP, we apply a disciplined investment style characterized by a low tracking error, which leads to consistent and stable investment returns. This approach means our green bond strategies offer benefits to both impact and traditional fixed income investors. The clear approach to creating and reporting on impact has earned several responsible investing labels and awards from independent agencies, such as MSCI AA, 4 Morningstar globes, Scope AA+, Towards Sustainability (Belgium) and Greenfin (France). The experience and position of NN IP in the market has enabled us to develop strong relationships with corporate and government-related issuers.”
