After making its first green bond investment last year, BankInvest plans to boost its relative share of green bonds in its investment grade portfolio. The green financing instruments currently weights 5 percent of the portfolio.
Carsten Horn Nielsen, chief portfolio manager at the bank-owned investment firm, sets clear priorities about which type of green bonds he wants to add to his investment grade portfolio:
"We prefer to invest in green bonds that support an immediate or near-term transition to a low-carbon future. The company's financial strength is obviously the single most important factor, and we won't invest in a bad corporate issuer only because it issues a green bond," he says to AMWatch.
He mentions that the Copenhagen-based money manager recently invested in a EUR 500m green bond issued by car rental service LeasePlan. The proceeds from the bond will be used to finance or refinance the purchase of fully electric vehicles.
Another example from the portfolio is utility Enel in Italy which wants to increase the share of renewables in its energy mix from 45 percent to 55 percent by 2021.
However, a common issue when investing in green bonds is oversubscription, the portfolio manager acknowledges.
"Financial markets were sour when we made the largest acquisitions to our portfolio, which meant that the issued bonds were relatively easy to invest in. When market conditions are strong, there are more buyers, and it could become increasingly difficult to invest in as most issuances currently are oversubscribed. This hopefully changes as the issuer base increases."
Green in favor of yield
Investors must accept a slightly lower coupon rate than similar conventional investment grade bonds.
"If a conventional bond yields 155 basis points, a similar green bond yields around 150 basis points. You, therefore, sacrifice some of the carry in order to secure a green portfolio. However, we can definitely see that clients are very interested in investing in the green bonds."
Horn Nielsen's investors are mostly retail. The chief portfolio manager recently wrote an article titled "Gennembrud for grønne obligationer", which is Danish for "Breakthrough for green bonds".