Two strategies focusing on sustainable strategies and environmentally conscious investing have both hit significant financial milestones this summer. NN Investment Partner's Green Bond now has EUR 1 billion in assets under management (AUM), while the UBS Asset Management's Climate Aware strategy has raised $2 billion since its launch less than three years ago.
The NNIP Green Bond fund, which was opened to investors in 2016 now totals EUR 1.03 billion AUM, with total strategy AUM including mandates hitting EUR 1.5 billion for the first time. It employs an impact investing strategy, only investing in bond opportunities that combine attractive financial returns with a clear positive environmental impacts, such as CO2 savings. Since inception, it has achieved an annualised outperformance of 0.63 percent (gross of fees) against its benchmark and is ranked in the top decile in its peer group.
For every EUR 1 million invested in the fund, 534 tonnes of CO2 are saved, which means the fund now saves 547,505 tonnes of CO2 annually. It creates these savings by its ’dark green‘ investment approach. This means that NN IP’s green bond team seeks out projects that make a measurable positive contribution to the United Nations Sustainable Development Goals, particularly climate change mitigation and climate change adaptation. NN IP also excludes investment opportunities that run counter to these sustainability goals and does not invest in green bonds that finance fossil fuel projects.
The growth of the fund was boosted by improved liquidity in the green bond market, which was initiated by issuers raising almost as much debt in the first half of 2019 as they did in the whole of 2018. This resulted in the global green bond market reaching EUR 440 billion, up from EUR 335 billion just one year ago.
The consequences of this record activity were substantial increase in the issuance of corporates and sovereigns. There are also longer term factors, such as the number of regular green bond issuers increasing, which is creating a stable supply of green securities and improving trading activity in the secondary market. This has helped stablish the asset class itself as a credible choice for fixed income investors aiming to make a positive environmental impact.
NN IP hopes this development will accelerate as the world becomes more connected, and investors more aware of the potential impact of their choices.
Commenting about the position of the fund on the investment landscape, Bram Bos, lead portfolio manager green bonds at NN Investment Partners, said: ’Since inception of the fund in 2016, we have been focusing on ‘dark green’ bonds, which we believe are the primary choice for investors willing to prioritise sustainability in fixed income. Allocation to this asset class enables investors to reduce the carbon footprint of their fixed income portfolios and provides protection against climate risk without sacrificing liquidity and returns."
Meanwhile, UBS Asset Management's (USB) Climate Aware strategy passed $2.07 billion at the end of June 2019, reflecting strong client demand for sustainable investment solutions.
The strategy was launched in February 2017, and was created to expose investors to the opportunities arising from the transition to a low carbon economy. It is a rules-based index equity strategy that aims to align investments with the anticipated 2 degrees Celsius increase of the Earth’s temperature.
UBS engages with companies to assist in preparations for the climate transition, with a particular focus on those in the Climate Aware portfolio which are at greater climate risk. The Climate Aware strategy includes the UBS Life Climate Aware World Equity Fund, UBS Common Contractual Fund – Global Climate Aware UCITS, UBS (CH) Investment Fund - Equities Global Climate Aware II I-X and UBS (CH) Institutional Fund 2 - Equities Global Climate Aware II.
In particular, the UBS Life Climate Aware World Equity Fund achieved significant low carbon landmarks. Total CO2 emissions by portfolio companies were contracting at an annual rate of 2.4 percent, compared to a rate of increase of 1.6 percent in the benchmark index. Coal energy consumption was also less than the benchmark index by a margin of 74 percent. In addition, the CO2 that could potentially be emitted from reserves of fossil fuels was 38% less than the benchmark index, while the fund's investments in renewable energy sources was 48 percent higher than the benchmark index.
The strategy is available in UK Life funds, Swiss Institutional funds, an Irish-domiciled Tax Transparent Fund, and in segregated mandates.
Michael Baldinger, global head of sustainable and impact investing, UBS Asset Management commented on the importance of environmentally conscious strategies and on the positive shift from clients towards sustainable investments.
He said: "Faced with the serious environmental and financial challenges posed by climate change, it is simply no longer an option for policymakers, companies or investors to ignore climate risk. We believe that the financial industry plays a key role in the transition to a world less dependent on carbon. Clients are increasingly seeking out opportunities to align their investment targets, with their obligations to incorporate sustainable investment factors within their asset allocations."
