Green bonds are the most popular choice of sustainable fixed-income options for institutional investors, according to NN Investment Partners (NN IP).
A poll of over 230 institutional investors globally in March by NN IP found that 45 per cent of investors think that they make the greatest positive impact. This was followed by sustainability-linked bonds (37 per cent), social bonds (11 per cent) and transition bonds (7 per cent).
However, NN IP’s survey found that the greatest barrier to green bond investing is the perception of inferior investment returns, according to 44 per cent of respondents, followed by fear of greenwashing (38 per cent) and insufficient market capacity (19 per cent).
In addition, more than three in five respondents (63 per cent) said they would use green bonds as an ‘impact bucket’ separate from their traditional bond allocation, whereas 20 per cent would use them to replace corporate bonds and 17 per cent to replace government bonds.
Commenting, NN IP lead portfolio manager green bonds, Bram Bos, said: “It is no surprise that green bonds are clearly the most popular sustainable fixed income instruments because they constitute the most mature and liquid market. They are probably the most effective way for fixed-income investors to enhance the impact they make without sacrificing returns.
“At times, yields might be a little bit lower but over the last seven years, on average a euro-denominated green bond portfolio has generated 40 basis points more than a regular bond portfolio, and for corporate bonds, the difference is 60 basis points.”
Although there are several passive alternatives available in the market, NN IP believes there are two key reasons that investors should favour active investing in green bonds.”
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