Green bonds top sustainable FI-list for institutional investors – NN IP

Written by Adam Cadle

05/05/2021

Green bonds are the most popular choice of sustainable fixed-income options for institutional investors, according to NN Investment Partners (NN IP).

A poll of over 230 institutional investors globally in March by NN IP found that 45% of investors think that they make the greatest positive impact. This was followed by sustainability-linked bonds (37%), social bonds (11%) and transition bonds (7%).

However, NN IP’s survey found that the greatest barrier to green bond investing is the perception of inferior investment returns, according to 44% of respondents, followed by fear of greenwashing (38%) and insufficient market capacity (19%).

In addition, more than three in five respondents (63%) said they would use green bonds as an ‘impact bucket’ separate from their traditional bond allocation, whereas 20% would use them to replace corporate bonds and 17% to replace government bonds.

Commenting, NN IP lead portfolio manager green bonds Bram Bos said: “It is no surprise that green bonds are clearly the most popular sustainable fixed income instruments because they constitute the most mature and liquid market. They are probably the most effective way for fixed-income investors to enhance the impact they make without sacrificing returns.

“At times, yields might be a little bit lower but over the last seven years, on average a euro-denominated green bond portfolio has generated 40 basis points more than a regular bond portfolio, and for corporate bonds, the difference is 60 basis points.”

Although there are several passive alternatives available in the market, NN IP believes there are two key reasons that investors should favour active investing in green bonds.”

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