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October 20, 2011
New Green Bonds Product Will Support Climate Protection
    by Robert Kropp

State Street Global Advisors says its High Quality Green Bond product will invest in green bonds issued by supranational or multilateral development banks.


Clients of one of the world's largest fixed income managers will now be able to direct their investments to provide positive economic and environmental benefits.

State Street Global Advisors (SSgA), with $306 billion in assets, announced this week that it has established a new High Quality Green Bond strategy to invest in green bonds issued by supranational or multilateral development banks.

The new fixed income investment product will focus on green bonds issued primarily by institutions such as the World Bank and the European Investment Bank (EIB), that allocate their proceeds to fund environmentally beneficial development projects.

Fixed income investments such as bonds are generally considered to be of lower risk and lower volatility than other investment options.

As examples of the green bonds in which it will invest, SSgA cited the World Bank Green Bonds and the EIB's Climate Awareness Bond.

The World Bank Green Bonds support World Bank projects addressing mitigation and adaptation solutions for climate change, and have had four issuances since 2008. World Bank has thus far issued over $2 billion in Green Bonds through 42 transactions and 16 currencies. Recent projects financed by Green Bonds include sustainable urban transport in Colombia, wind power development in Egypt, and Turkey's Private Sector Renewable Energy and Energy Efficiency Project.

World Bank Green Bonds are already included in the bond offerings of at least two sustainable investment firms. Calvert Investments includes them in its green bond fund, and Trillium Asset Management has purchased them for the Green Century Balanced Fund.

The proceeds from EIB's Climate Awareness Bond, launched in 2007, are used to finance renewable energy and energy efficiency projects that contribute to climate protection. Since the launch, EIB has raised almost $2.1 billion through the program. A recent example is $101 million in financing for the construction of 22 wind farms in Portugal with a total capacity of 486 MW.

Overall, current estimates from all issuers of green bonds are approximately $12 billion.

SSgA's Green Bond strategy will seek to approximate the performance of its duration benchmark, the Barclays Capital US Treasury Index.

"Investment managers are being asked more frequently by their clients to consider sustainability and environmental factors in their approach to the market," said Chris McKnett, head of environment, social and governance (ESG) investing at SSgA. "The development of a green bond strategy as a complementary solution to our other ESG investment offerings was driven by increased market demand amongst investors."

SSgA reports having more than $122 billion in overall ESG assets under management as of June 30.

 

 
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