Magnus Billing, the head of Sweden’s biggest pension provider Alecta, has declared himself bullish on the growth prospects for the green bond market, but also advocated flexibility for issuers to label their sustainable debt with a range of different environmental credentials.
Speaking at the IPE Nordic Investment Forum event this morning, Billing – chief executive officer of the SEK1trn (€98.4bn) pension fund – said he was optimistic green bonds would one day become the norm, adding: “But I think it will be different shades of green, and I think we should encourage different shades of green.”
The current public discussion on the EU taxonomy for sustainable activities suggested people felt there was a binary choice to make, he told the online event.
”Either you’re very green or not at all green, but in my world it would be more diversified,” he said, adding: “But I think more and more would be labelled as green.”
“I think a key question would be – and we feel the importance of this is increasing by the day – is that we need more real-time reporting on impact and feedback that our money is being used in a green way,” Billing said.
Today, the premium on green bonds was high, he said, but this was a supply-and-demand issue.
“I think more and more corporates are concerned with cost of capital. That is a strong incentive for them to think about how can they provide a business model which will enable them to tap into the green bond market or the ESG market, and thereby be more efficient regarding cost of capital,” the CEO said.
However, Billing said a more important topic than the green bonds market was the need for an organisation to show its customer base that it was on track to deliver its climate objective, and ways of showing the pathway to net-zero carbon emissions.
The Alecta CEO told the event that the achievement of the climate goal would require successful innovation in some industrial sectors, such as steel production, so investors needed to be encouraged to invest in such areas.
“(The steel industry) has great potential for turning the production of steel into a net carbon-free activity, but that requires successful innovation with a large capital undertaking,” he said.
“If you take that bet as an investor, your carbon footprint will increase before it comes down, and I think it would be a mistake if we don’t encourage that short of bet from the investor side – by accepting that there will be a peak before you can come down.
“That is more important, I think, than focussing on the exclusions way,” said Billing.
In his presentation on Alecta’s idea of robust portfolio construction, he said current mega trends such as digitalisation; automation of production processes; increased focus on sustainable business models and the regionalisation of supply chains had mostly been accelerated by the pandemic.
Asked whether he thought society really would “build back better”, Billing said he was somewhat concerned about the future, with an age of global trade, many years of falling interest rates and good demographics now coming to an end.
“But the flip side is that clearly we have a great opportunity if we do it right,” he said.
“Some regions are, right now at least, doing this better than the European Union is doing it unfortunately. So I’m a little bit concerned about what the future might bring,” he said.
ESG had now become a permanent theme within investment, which was very positive, he said. “So this is a real opportunity to make something happen,” said Billing.