Pension funds in the Netherlands have continued to increase their allocations to green bonds this year. Despite rising yields and concomitant investment losses, pension funds’ total green bond investments rose to €30bn by the end of August, according to DNB figures.

This is an increase of some €10bn compared with August 2021. As a result, pension funds have been entirely responsible for the growth in green bond investments in the Netherlands, which rose from €41bn to €50bn over the past year.

Bond exposure reaches lowest level since 2014

Dutch pension fund investments in regular bonds have crashed below the threshold of €300bn for the first time since 2014.

Total government bond investments (including green bonds) came down from €530bn at the start of the year to €328bn now, a 38% decrease.

This decline is so huge that it cannot only be explained by investment losses. Schemes have also sold bonds, in part to fund margin calls due to rapidly rising interest rates.

The asset growth is remarkable, as allocations to basically all other types of listed assets have registered steep declines this year (see box), mainly due to steep falls in value.

Green bonds have not escaped the market volatility, but this has failed to dent appetite among investors, noted Bram Bos, head of green bonds at Dutch asset manager NN Investment Partner

Source: DNB

He said: “You see that the trend towards sustainable finance is still very much intact. Moreover, we’ve seen demand for traditional fixed income and green bonds moving in opposite directions.”

NN IP has even seen record inflows into its green bond strategies this year, while there have been outflows from regular bonds.

“That inflows have continued amid an environment of rising interest rates, has been a positive surprise for us,” Bos noted. NN IP’s green bond funds have lost between 9% and 23% of their value year-to-date.

Pension funds ABP and PFZW are responsible for the bulk of Dutch green bond investments. ABP, which owned about €15bn of green bond investments by the end of 2021, did not respond to questions by the time this report was written.

A PFZW spokesman said the healthcare scheme swapped some €3bn of regular bonds for green and social bonds in 2021, a little over half of which concerned government bonds.

PFZW also invested heavily in bonds issued by supranational entities, including bonds issued by the European Union.

The pension funds did not provide any figures for 2022.

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