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Mixed pension fund response to Swedish government green bonds plan

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Sweden’s largest pension fund Alecta has welcomed the government’s plan to issue green bonds for the first time by next year – but others have voiced doubts about the proposed environmentally-linked sovereign debt.

The Swedish government announced last week that it would instruct the Debt Office to issue green bonds by 2020 at the latest. While green bonds had previously been issued by both public and private bodies in Sweden, this would mark the first state issuance, the government said.

The bonds will finance budget expenditure for sustainable schemes and projects, it added.

Per Bolund, Swedish financial markets minister, said: “The fact that the state is now issuing green bonds is an important part of the transition towards sustainable development.

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“The financial market plays a central role in this transition and by promoting the market for green bonds, the government wants to increase the opportunities for sustainable investments.”

Magnus Billing, CEO, Alecta

“The expected return of green bonds should not be lower just because they are qualified as green investments”

Magnus Billing, CEO, Alecta

In 2018, the government-commissioned report ‘Promoting the Market for Green Bonds’ concluded that the most important promotion measure would be for the government itself to issue the bonds.

Alecta chief executive Magnus Billing told IPE his pension fund welcomed the government’s decision to issue green bonds, and it would participate “if the price is right”.

He added: “The expected return of green bonds should not be lower just because they are qualified as green investments. At the moment, the demand for green bonds is much higher than the supply, and that is reflected on the pricing.”

Last month, Billing advocated the issuance of Swedish government green bonds in a newspaper opinion piece.

AMF casts doubt

However, Sweden’s third-largest pension fund AMF expressed doubts about the effectiveness of the proposed assets, warning that the bonds risked overturning the green transition in a worst-case scenario.

Jonas Eliasson, chief executive of the firm’s AMF Funds unit, said: “As we understand it, it is not possible to earmark certain funding for certain projects in the state budget. This means that these investments would be implemented regardless of whether the green bonds were issued or not. The lower funding cost from green bonds will thus benefit both brown and green objects.”

Eliasson added that, although green bonds were in high demand among fund companies wishing to appear sustainable, it was doubtful that investments in government green bonds would be any greener than other government-issued bonds.

Swedish life and pensions firm Folksam said that, having already invested over SEK30bn (€2.9bn) in green and sustainable bonds, it welcomed the government’s decision.

Tobias Fransson, head of strategy and sustainability, AP4

Tobias Fransson, head of strategy and sustainability, AP4

A spokesperson for Folksam said: “The vision of the Folksam Group is that our customers should feel secure in a sustainable world. Sustainable investments that go hand-in-hand with good returns are an important part of our core business.”

Although it declined to comment specifically on the planned green bond, national pensions buffer fund AP4 said there had to be a strong connection between green bonds and underlying green assets for the market to be successful.

Tobias Fransson, AP4 head of strategy and sustainability, told IPE: “An asset-backed structure where green bonds are backed by green assets would contribute to a unique set of expected return and risk characteristics, which would lower cost of capital for green projects and attract many more investors than at the current situation.”

In May, the Dutch government issued the country’s first state green bonds, with European pension funds becoming heavy subscribers to the €5.9bn issue.

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