The name's bonds, green bonds

In our last Positive Impact Funds blog, we highlighted how some of the companies from the growth portion (60%) of the Funds are making a positive impact. Now we look at the income portion (40%) of the Funds, which are invested in green bonds.

We dive into what green bonds are, what we hold, how they perform, and how they align to the United Nations Sustainable Development Goals (UN SDG).

Green bonds are fixed income instruments where the proceeds are exclusively applied towards new and existing green projects. These projects need to have clear environmental benefits such as renewable energy, green buildings, wastewater management, energy efficiency, and public transport.

Companies that issue green bonds are signing themselves up to a bit more than a regular or ‘vanilla’ bond. They commit themselves to additional requirements such as reporting environmental metrics, so we know what impacts the green bonds are achieving.

Green bonds can help mitigate climate risk with environmental projects that have climate benefits and signal positive movement towards net zero alignment.

It’s not just companies that are involved in green bonds, however. Many governments, including our own, are increasingly issuing green bonds to fund climate and environmental programmes.

Since the first green bond was issued by the European Investment Bank in 2007, they have become increasingly prominent, with more than US$1.6 trillion issued to date.

The chart below provides a breakdown of the types of projects financed by the green bonds the Positive Impact Funds owns. It shows the breakdown of eligible projects declared by the bond issuers that our fund manager was invested in as of May 2022.

Our fund manager, BlackRock, closely tracks a green bond market index - the Bloomberg MSCI Global Green Bond Index. All bonds included in this index are assessed by MSCI and adhere to Green Bond Principles.

We hold over 900 green bonds in our Funds. Below we’ve highlighted some of the issuers our Funds is invested in, and what they’re using their proceeds towards.

• Auckland Council: Low-carbon transport such as electric trains, cycleways, and city-rail link.
• New Zealand Government: Low-emissions or environmental projects that, for example, support decarbonisation of heavy transport and freight, restore and protect freshwater ecosystems, increase infrastructure resilience to natural hazards and remediate and restore contaminated land.
  
• Iberdrola Finanza: Onshore wind energy and photovoltaic installations in Australia and Poland.
  
• Danske Bank: Green asset portfolio which includes energy efficient buildings, renewable energy, clean transportation, environmentally sustainable management of living natural resource and land use, pollution prevention and control, and transmission and energy storage.
  
• Korea Development Bank: Renewable energy projects and rechargeable batteries for electric vehicles.
  
• China Development Bank (Hong Kong Branch): Sustainable water and wastewater management, pollution prevention and control, and renewable energy.
  

Green bonds have been around since 2007 so we’ve got a bit of data to look at their performance.

Overall, green bonds skew towards high-quality issuers. This means that green bonds are resilient, with less drawdowns and lower volatility in times of market stress.

Comparing like-for-like, a study by BlackRock found that pricing, liquidity, spreads, and credit risk was similar for green bonds and their traditional counterparts. This means investors don’t need to sacrifice in order to invest in green bonds and support the environmental projects they help fund.

The below shows how the green bond projects align to the UN SDG. It’s important to make this connection as the UN SDG are the internationally recognised actions for peace and prosperity for people and the planet. Our Positive Impact Funds measures its impact against these goals.

The Positive Impact Funds are a great option for those seeking moderate to high long-term returns through investments that make a positive impact on society or the environment and is offered in the ASB KiwiSaver Scheme and ASB Investment Funds.

Interests in the ASB KiwiSaver Scheme and ASB Investment Funds (Schemes) are issued by ASB Group Investments Limited, a wholly owned subsidiary of ASB Bank Limited (ASB). ASB provides administration and distribution services for the Schemes. No person guarantees interests in the Schemes. Interests in the Schemes are not deposits or other liabilities of ASB. They are subject to investment risk, including possible loss of income and principal invested. For more information see the ASB KiwiSaver Scheme Product Disclosure Statement or the ASB Investment Funds Product Disclosure Statement available from this website and the register of offers of financial products at www.disclose-register.companiesoffice.govt.nz (search for ASB).