Global Green Bonds
"An investment into Green Bonds can offer an investor a unique combination of providing investment to help to mitigate global climate change in developed and emerging markets, whilst providing capital gains and income over the mid to long term for investors.”
- Green Bonds raise funds for new and existing projects which deliver environmental benefits
- To meet agreements set in the Paris Accord, Green Bonds will become a significant investment instrument
- Provides investors with a tax-exempt income and the satisfaction of knowing the proceeds of their investment will be used in a positive manner
- Capital markets and bond issues play a central role in raising capital globally and crowding-in public and private investors from all over the world
- Growing segment of the fixed income universe is ‘Green Bonds’, reflecting the increasing importance being placed upon environmental sustainability
- Over the last 5 years, the market has significantly grown. In 2020, the market value for SSA Green Bonds is expected to be USD250 billion+
- Funds raised finance the development of new or existing environmental projects, including renewable energy, sustainable water management and pollution prevention
- The Green SSA market is large and liquid and the demand for such high quality paper makes these investments trade at lower yields to competing spread products, but still above the sovereign debt of their respective countries
- There are many different Green Bond issuers and proceeds are used for a broad range of applications
- SSA Green Bonds represent the ‘gold standard’ of environmental friendliness
Steve and Raphael both sit within the wider Global Fixed Income team in London, led by Andre Severino. The team consists of 16 investment professionals in London with a further 5 in Nikko AM’s Sydney office who collectively have an average of 16 years of investment management experience. The team has significantly broadened over time to support the strategies’ growth and cater for institutional portfolios. One of our biggest advantages is the fluid interaction across the five business lines and the ability to execute decisions quickly, once a decision has been made. The diagram below illustrates the organisational structure in London.
"A consistent four-step investment process which incorporates quantitative and qualitative inputs, engaging the team in a collaborative process to generate ideas reflected in high conviction duration, currency, credit and yield curve calls to construct a Green Bond portfolio”
Ongoing risk management is integral to the entire investment process with constant dialogue between our investment team and the independent risk management team to ensure that risks are identified, evaluated, monitored and mitigated.
Proven Track Record
Nikko AM has a long history in managing Green Bonds and launched the world’s first Green Bond Fund in 2010. As well as dedicated Green Bond strategies, we also hold Green Bonds in our other Global Fixed Income portfolios.
Nikko AM’s investment team has no input into setting and or executing the “green” component of this strategy. It is this very impartiality which strengthens the product as a whole for the end investor. Unlike some of their peers, the investment team can focus their energies on what they do best – analysing and investing in global currency and bond markets.
Fluid interaction across the investment team and the ability to make decisions promptly. By working in an open environment, the team works in close proximity and ideas don’t get lost waiting for an Investment Committee decision at each level.
A key aspect of due diligence towards the issuers for Nikko AM is the transparency the issuer provides on their Green Bond programme. Additionally, the quality of reporting and availability of information would be taken into account.
Perhaps the most recognised risk related to Green Bonds is 'greenwashing', which is defined as the superficial or insincere display of concern for the environment.
The strategy does not have exposure to green corporate bonds, where credibility and transparency of programmes can be questioned.
Before investing, Nikko AM would assess the following:
- Clear description of the projects to be financed (including goals, projected impacts, sustainable development principals)
- Competent project selection as well as a fully transparent process of the management of proceeds
- A frequent public reporting including project description, allocation of funds and environmental impacts (quantified where feasible)
- A verification of the project selection and use of funds from an independent third party
The funds mentioned are Singapore registered funds approved for sale or purchase in Singapore. By proceeding, you are representing and warranting that you are either resident in Singapore or the applicable laws and regulations of your jurisdiction allow you to access the information.
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