Dutch pensions funds ABP, PFZW and PMT said they had invested in a new type of bonds, targeting the United Nation’s Sustainable Development Goals (SDGs), issued by Italian energy firm Enel.
The trio said it was particularly keen on the interest level linked to achieving concrete goals.
In a so-called “coupon step-up”, Enel has committed to pay an additional 25bps, on top of the coupon interest paid to investors, if it fails to meet its target.
Enel said it wanted to source at least 55% of its energy from sustainable origins by 2021, and to have reduced its carbon intensity by two-thirds – to 125 grams per kWh – by 2030.
“By punishing itself through the coupon step-up, Enel has given itself an additional incentive to increase operating sustainably,” said a spokesman for the €86bn metal scheme PMT, which has bought a €45m stake in the euro-denominated bond.
The €465bn civil service pension fund ABP announced it had invested in both Enel’s dollar-denominated and euro-denominated SDG bond.
The €238bn healthcare scheme PFZW said it is keen on the step-up. However, a spokesman for PFZW and PGGM, the scheme’s asset manager, highlighted the importance of sufficiently ambitious targets, in order to guarantee a significant effort to meet the goals.
ABP said it had invested almost €53m in SDG-linked bonds. PFZW declined to be specific about its stake.
Enel is the first company to have issued SDG bonds in addition to green bonds. In September it raised $1.5bn for its dollar-denominated bonds, whereas its euro-denominated issuance in October fetched €2.5bn.
The Italian energy firm said it also wants to contribute to the SDGs by installing smart electricity meters and charging stations for electric vehicles.
SDG bonds as issued by Enel differ from green bonds because their entire proceeds don’t have to be invested in specific green projects.
Asset manager NN Investment Partners said it estimated the market for SDG bonds at approximately €250bn.
PFZW noted that the relative flexibility of SDG bonds made them an attractive addition to green bonds.
“Green bonds are in particularly issued by banks and utility companies, and therefore often relatively limited in respect to projects,” it said.
“SDG bonds could be an addition to the funding mix of a broader range of companies with sustainable targets”
PFZW, the second largest pension fund in the Netherlands
“SDG bonds could be an addition to the funding mix of a broader range of companies with sustainable targets.”
Lucienne de Bakker, project manager for socially responsible investment (SRI) at the Dutch Association of Investors for Sustainable Development (VBDO), said the introduction of SDG bonds was a “logical next step”, following the strong growth of the green bond market.
“It is an interesting way of communicating for investors and companies, as they can easily show a concrete impact,” she argued.
PMT said it is already assessing additional options for investing in SDG bonds.
ABP added that, although Enel was the only firm that has issued this paper so far, it expected more companies to follow suit.
The €29bn multi-sector scheme PGB, which hasn’t invested in the Enel bond, said it applauded the concept “because of the control it gives over the subjects of investment”.