PostNL pension fund is in the process of considerably increasing its hitherto modest allocation to green government and corporate bonds. The fund has changed its stake in an NN Investment Partners green bond fund into a bespoke mandate.
The €10bn PostNL fund has taken this step in order to concentrate its green bond portfolio on the Sustainable Development Goal (SDGs) of its choice.
The fund’s current green bond investments are mainly linked to the SDGs 13 (Climate Action) and 7 (Affordable & Renewable Energy), according to the fund’s president, René van de Kieft. Respectively, 100% and 80% of green bonds can be linked to these two SDGs, he said.
At the moment, the corporate green bond portfolio “has realised a CO2 reduction comparable to the energy use of 10,000 houses and had produced energy comparable to 70 wind turbines”, according to Van de Kieft.
The two climate-related SDGs are most suitable for green bond investments because it’s easier to find suitable credits than for the other SDG the fund focuses on (SDG 3: Good Health & Well-Being), he added.
No Schiphol green bonds
Due to the specific focus on the SDGs, not all green bonds are eligible for inclusion in the PostNL green bond mandate. An example of this is the green bond issued by Schiphol airport a few years ago, as the pension fund deems airports “too polluting an industry” to credibly issue green bonds.
“When deciding whether to invest in a certain green bond we don’t only look at the specific project that will be financed, but also take into consideration who the issuer is,” explained Van de Kieft.
The Netherlands’ two largest pension investors APG and PGGM do invest in the green bond in question, which has as its purpose to make local airport transport emissions-free.
At the moment, PostNL pension fund is still looking for an “explicit allocation” to SDG 3 together with NN IP. If this search is successful, green bonds should be making up a third of the pension fund’s corporate bond allocation by the end of next year.
The pension fund is also still investigating how to implement “a drastic reduction of [its] carbon footprint”. In PostNL’s sustainable European equity portfolio, about a quarter of the fund’s equity allocation carbon emissions were reduced by some 80%, following the adoption of a new sustainable index last year.
PostNL is also in the process of increasing its allocation to green government bonds to 25% of its matching portfolio. This is, however, going at a slower pace than hoped because of green bond demand outstripping supply, said Van de Kieft.
As a result, yields on green government bonds are somewhat lower than on regular government bonds with similar duration. “We have chosen to increase our allocation gradually to make sure our green bond investments do not erode returns,” he explained.
At the end of the first quarter, PostNL’s green government bond allocation stood at 7%.
Less in Russia and China
PostNL is also aiming to integrate its sustainable investment policy in its emerging market debt portfolio. To this end, it has exchanged its active managers for a passive portfolio with an ESG filter.
Countries such as Russia, China, Mexico, Indonesia, Brazil and Turkey are underweight in the portfolio due to their poor ESG scores. On the other hand, Malaysia, Uruguay, Abu Dhabi and a number of East European countries are being overweight.
Ten countries including Nigeria, Iraq and Venezuela have been excluded altogether.
Van de Kieft admitted emerging market debt remaind a “challenging category” to implement a decent sustainable investment policy.
He said: “Over the course of next year we will sit down with our fiduciary manager [Aegon/TKPI] to see whether there are more opportunities to invest more sustainably in this asset class.”
New high-yield managers
This year, high-yield bonds will be the final listed fixed-income category to undergo a ‘greenification’ exercise. PostNL wants to reduce the carbon footprint of its high-yield portfolio by 40% compared to the global benchmark.
It will also implement a best-in-class policy excluding the one-third of worst ESG scorers. The pension fund will start a search for a new high-yield bond manager to this end, followed by a search for another manager at a later stage.
The high-yield bond portfolio’s current manager is Aegon/TKPI which has selected several managers in a multi-manager approach.