Storebrand Fund a Gauge for Green Bond Growth
Asset manager’s Head of Fixed Income hopes market expansion will eliminate need for the purely green bond-focused vehicle within the next decade.
The tenth anniversary of Nordic asset manager Storebrand’s Green Bond Fund offers a yardstick for the significant growth of and interest in green, social, sustainability, sustainability-linked and transition (GSS+) bonds during the last decade.
Launched in 2015, the fund has hit almost SEK 11 billion (US$1.1 billion) in AUM and has delivered returns of 6% over the past five years, more than double its benchmark index. It has helped channel capital into projects including energy-efficient housing, sustainable waste management, train connections and bike lanes.
More recently, the fund has expanded its investments in a company specialising in aluminium recycling and manufacturing equipment for battery production, while a separate investment was allocated to the electrification of trucks and the decarbonisation of the supply chain.
“Our fund has picked up a lot of the [EU Sustainable Finance Disclosure Regulation] Article 9 green bond fund investments in the Swedish market,” Gustaf Linnell, Head of Fixed Income at Storebrand Asset Management, told ESG Investor. “Our largest peers are not a third as large given the investments our fund has attracted.”
Fellow asset managers, including Allianz Global Investors, Amundi, Goldman Sachs Asset Management, Mirova and Nuveen, have followed suit in launching green bond funds since the introduction of Storebrand’s 2015 vehicle.
While the fund’s AUM has steadily grown since its inception, demand has increased over the past three years, as has the wider fixed income sector in general, largely driven by rising interest rates.
Linnell noted that as the green bond market has expanded, GSS+ bonds have increasingly become part of Storebrand’s traditional bond funds, with Article 8 or sustainable funds accounting for an average 20% of these products.
“If this market continues to grow and we can increase our green bonds within all of our mandates, perhaps within the next ten years we would no longer need a pure green bond fund,” he added. “We would have achieved what we wanted from the beginning, to drive the transition within all of our investments.”
Niche to mainstream evolution
Storebrand stated that the fund was the first commercial green bond fund, building on the first ever green bond issued by the World Bank in 2008. Storebrand’s fund is an actively managed fixed-income fund that invests in green bonds.
Green bonds are a form of fixed-income debt instrument which raise funds for new and existing projects delivering environmental and sustainability benefits. This can include renewable energy, sustainable resource use, conservation, clean transportation and adaptation to climate change.
“Green bonds are an excellent financial instrument for earmarking money for climate projects, while providing equivalent returns to traditional bond investments with similar interest and credit risk.” said Linnell.
“When the fund was launched in 2015, it was a very niche product and a hard sell where we had to promote and demonstrate the benefits in detail, but now sustainability-related bonds make up over half of all corporate bonds issued in Sweden,” he added. “You could really say it has gone from niche to mainstream, [and] the main reason for us saying this is that the volumes have increased steadily since we launched the fund.”
Linnell noted that the fund has historically focused on the financial and real estate sectors, but the market has grown and evolved. “The type of corporate issuers is expanding, and the different sectors that we see coming to market are increasingly diverse compared to when we launched the fund,” he said.
“Historically the focus of the fund has been on financial and real estate sectors, but the market has grown,” Linnell added. “That’s been the biggest transition since the launch of the fund. The type of sectors that we can invest in has broadened, and the interest from issuers to issue green bonds has increased within the different sectors.”
On 31st December 2024, cumulative GSS+ bond volumes stood at US$5.7 trillion according to analysis from the Climate Bonds Initiative (CBI), with green bonds accounting for US3.5 trillion of this.
GSS+ bond issuances almost reached US$1 trillion last year and is forecast to exceed USS1 trillion year, with the European Green Bond Standard (EUGBS) being a key driver this continued growth. Adopted last year, standard has been credited with bolstering investor confidence, support the long-term growth of the EU green bond market, addressing greenwashing, and improving transparency to help to generate more comparable and comprehensive information.
“For European investors, the EUGBS will offer greater clarity and move away from some of the greenwashing that is occurring on the fringes of this market, which can help to increase the attractiveness of this market going forward,” said Linnell.
While not compulsory, the standard aims to create a ‘gold standard’ that ensures environmentally sustainable allocation of the funds along with greater transparency of the process and robust external assessment of an issuer’s claims.
Specifically, issuers must allot at least 85% of proceeds to projects that are aligned with the EU’s green taxonomy, while the remaining 15% is allocated to a so-called flexibility bucket for areas such as agriculture that are not yet covered by the taxonomy.
The are other guidelines for issuers to select, such as the International Capital Markets Association’s (ICMA) Green Bond Principles (GBP) and the CBI guidelines.
“The clear reason for the market actually to start growing are frameworks, like the ICMA GBP, offering a clear guideline of what is seen as having an environmental impact,” he added. “This helps both issuers and investors to have greater transparency over our investments.”
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