SSgA launches green bond investment strategy as market grows
EUROPE - State Street Global Advisors (SSgA) has launched a green bond strategy allowing investors to aim their fixed income investments at environmentally friendly bonds, working in cooperation with a number of institutions including the World Bank.
In the past two years, the nascent green bond market from these issuers has grown from $1bn (€724m) to $5bn outstanding.
Overall, the estimate from all issuers of green bonds is approximately $12bn, according to SSgA's Climate Bonds Initiative.
Chris McKnett, head of environment, social and governance (ESG) investing at SSgA, said: "Investment managers are being asked more frequently by their clients to consider sustainability and environmental factors in their approach to the market.
"The development of a green bond strategy as a complementary solution to our other ESG investment offerings was driven by increased market demand among investors."
SSgA's High Quality Green Bond Strategy seeks to approximate the duration of its duration benchmark - the Barclays Capital US Treasury index - through investments principally in green bonds and other debt instruments.
It will primarily invest in green bonds issued by supranational or multilateral development banks such as the World Bank or European Investment Bank.
Selected for their similarity with products on the standard bond market, the institutions' green bonds were said to mirror the high credit quality of other non-ESG issuances.
Eligible green bond issuers undertake extensive due diligence to finance projects that provide positive economic and environmental benefits.
Projects financed by green bonds generally fall into one of two categories: those seeking to mitigate climate change or projects seeking to adapt to its effects.
Andrew Steer, special envoy for climate change at the World Bank, said: "With the immense amounts of financing needed for countries to support their climate mitigation and adaptation activities, initiatives like green bonds that help raise funds from the private sector and increase awareness for these challenges are vital."
Other green bond issuers are the Nordic Investment Bank (NIB), Bank of America, Merrill Lynch and SEB.
Green bond investors include global pension funds, including Swedish life insurance provider SEB Trygg Liv and and the country's buffer funds AP2 and AP3, as well as the California State Teachers' Retirement System and the UN's Joint Staff Pension Fund.
Green bonds are among the climate-sensitive assets needed by institutional investors to integrate climate change in their asset allocation, according to a report by Mercer released earlier in the year.