The Nasdaq Nordic Sustainable Bond Market is flourishing due to our continued commitment to the environment, society and a more responsible future. With over one hundred green and sustainable bonds listed, it is a testament to the extensive integration of sustainable practices amongst Nordic companies.
Nasdaq’s sustainable bond listings offer high transparency that makes it easier for investors to invest and manage risk, which goes hand in hand with our overall mission to provide fair, transparent and efficient markets.
In this series, called Green Voices of Nasdaq Nordic, we are providing a platform that allows our green bond issuers and investors to share their stories. This story shines a light on Alecta’sinvestment in green bonds, which they began investing in about five years ago.
Sweden’s largest pension provider, Alecta, is increasingly incorporating green bonds into its portfolio as investor appetite grows for sustainable investment opportunities that provide transparency into the assets being financed.
Alecta, which manages occupational pension plans for 2.4 million people and 34,000 businesses, began investing in green bonds about five years ago, according to Carina Silberg, the head of sustainability at Alecta. Initially, the most challenging obstacle was overcoming a skeptical mindset about green bonds, as investors wondered not only what they were but also if there was a trade-off financially.
“Green bonds give us a chance to actually trace the proceeds of corporate financing all the way down to sustainable assets or even activity that can contribute in an environmental way. We value transparency in itself, and we seek to be able to measure additional impacts than financial. Green bonds offer that possibility” Silberg said.
Investing in Sustainable Assets
Interest in sustainable assets, such as green bonds, has grown along with the rise of environmental, social and governance (ESG) investing, which is about considering risks and opportunities related to sustainability and ethical aspects, and more financial firms are looking to incorporate that into their portfolios.
“We're seeing that our peers are much more interested as well,” said Silberg. “So, it’s more competition on the green bonds side, which requires us to be really prudent and be as selective as we are in our other investments in terms of risk adjusted returns.”
Alecta has integrated ESG indicators when it assesses a bond issuer, for both green and general corporate bonds. Green bonds represent about seven percent of the pension provider’s overall fixed income portfolio, but with 31 bn SEK, it is still one of the largest green bond portfolios in the world, according to Silberg. As it builds its green-bond share, Alecta increases its financial support for various environmental projects.
“Green bonds give us the opportunity to communicate to our beneficiaries that these products are earmarked for environmental improvements,” said Silberg. “So, that’s what singles them out; we know what we’re financing specifically.”
“If I look to our portfolio and what kind of projects we have in the green bonds space, it’s everything from financing the expansion of wind power to responsible forestry to refurbishing projects in the real estate industry,” Silberg said.
As a large pension provider, Alecta has a fiduciary duty to its beneficiaries, and with a long-term perspective sustainability is an important lens to both increase and protect value, as well as finding new investment opportunities. Managing assets over generations, Alecta’s beneficiaries’ interest is aligned with a sustainable development of both the economy and the society.
Silberg elaborated on the impact of some of their sustainable projects, in which they have collaborated with global financial institutions and initiatives.
“We are seeing new collaborations, where we as an institutional investor through blended finance set-ups can invest for impact in emerging markets contributing to a socioeconomic development and environmental standards. This is enabled by leverage of the local knowledge and competence of the World Bank or a development bank in the due diligence process and tools for de-risking which then makes is possible to attract and scale up private investments and increase impact,” Silberg said.
In addition to specific investments designed to deliver both financial returns and sustainability impact, such as with the World Bank or financing wind power projects through green bonds, Alecta has made a long-term pledge to align the equity portfolio with the aim of the Paris Agreement. The objective of the agreement is to strengthen the global response to the threat of climate change by keeping the global temperature rise this century well below two degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to one-and-a-half degrees Celsius.
“We are really trying to stress test our portfolio to see how capable and fit it is for two degrees scenario,” Silberg said.
Future of Green Bonds
The future of green bonds is bright as investors and issuers hope to expand sustainable investing to other socially-conscious initiatives. While most of the current sustainable bond offerings relate to environmental causes, Silberg sees a rapid pace of innovation extending to social bonds and other areas.
Nasdaq’s role in ESG
The Nasdaq Sustainable Bond Market was launched in July of 2015 with a total volume of 740 million euro. Last year €1.7bn ($1.9bn) was raised on the Nasdaq Nordic Sustainable Bond Market, up 81% from 2016. We facilitate infrastructure, monitor issuers and foster dialogue to ensure the continued growth of the markets.
Bonds can be listed on Nasdaq Sustainable Bond Market if a set of criteria are fulfilled. The respective criteria are based on the green and social bond principles (the GBP and SBP), for which ICMA acts as secretariat, and have been developed in cooperation with Sustainalytics, a global leader in environmental, social and corporate governance (ESG) research. Issuers that wish to list green, social or sustainable bonds on our sustainable bond market goes through the same process as traditional bond issuers. However, the issuer must supply Nasdaq with information regarding the bond or bond framework as well as the third party’s review when applying to list.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.