Company: Amundi Asset Management
Category: Real World Impact Initiative of the Year (winner)
In the spirit of showcasing leadership and raising standards of responsible investment among all our signatories, we are pleased to publish case studies of all the winning and shortlisted entries for the PRI Awards 2019.
Project overview, objectives, and reasons for undertaking it
In March 2018 the IFC and Amundi jointly launched the world’s largest targeted green bond fund focused on emerging markets. The Amundi Planet Emerging Green One (EGO) aims to deploy US$2bn into emerging markets green bonds over its seven-year lifetime. With a US$256 million cornerstone commitment from IFC, the fund aims to increase the capacity of emerging market banks to fund climate-smart investments. The Amundi-IFC partnership gives investors an opportunity to invest at scale, with exposure to emerging markets yields, and a positive impact on the energy transition in countries where it is most needed.
The fund is designed to stimulate not just the global demand for green bonds, but also the supply of green bonds in these markets - via a targeted support programme for emerging markets financial institutions.
The fund is unique in three ways:
• By size: it the biggest green bond fund targeted at EM to date.
• By focus: it is the first green bond fund solely focused on emerging markets financial institutions green bonds.
• By mechanism: it is the first comprehensive programme that combines a demand and a supply mechanism.
Amundi and IFC’s ultimate aim is to encourage more local financial institutions to issue green bonds, by supporting the development of local markets and by increasing global demand for this type of asset. The fund will initially invest in sovereign, quasi-sovereign and other bonds issued by financial institutions, as emerging market green bond issuances from financial institutions has been limited to date. Thereafter, the fund aims to transition entirely to green bonds over the course of the investment period as the market for green bonds in emerging markets develops.
Financial scale of the project and impact
The fund raised US$1.4bn from 16 institutional investors, including leading pension funds, insurance companies, and international development banks. After a seven-year investment period, the EGO fund will be 100% invested in green bonds.
The impact has already been significant. First, it has sent signals to emerging market green bond issuers to align themselves with the EGO fund’s criteria in order to access a new source of funding. Also, the fund’s work is a stepping-stone for future third-party initiatives.
Alongside the IFC’s support programme in helping local financial institutions to issue green bonds, the EGO fund works to help emerging economies to build functioning debt capital markets.
Project delivery and challenges overcome
The EGO initiative has fuelled public and private partnerships with additional capacity to invest in the low-carbon economy in emerging markets. The two biggest challenges in establishing the fund were, first, to attract investors and, second, to construct the portfolio.
1. Attracting investors: EGO challenged institutional investors to adjust their internal governance rules to approve an investment that did not fall into the usual asset allocation classifications. Once the fund had started to attract institutional money, it became a signal for other institutional investors to follow suit - as well as more asset managers and development finance institutions to recognise each other’s potential in the next generation of public-private-partnerships.
2. Constructing the portfolio: Two key challenges were identified:
First, ensuring that green bonds bought by the fund are authentically green. To help in this, the fund applies a rigorous green bond analysis to ensure the issuer’s standards reflect the Green Bond Principles. The EGO fund has also established a scientific committee consisting of industry and green finance experts to advise on the fund’s ESG policy.
The second challenge in constructing the portfolio was in finding a way to limit the adverse effects of interest rate risk. By matching the maturity of initial conventional bonds held with the maturity of the prospective green bonds to be purchased, the threat of interest rate risk is mitigated.
Measuring success and lessons learned
The success of the project can be measured by the amount of money collected from a diverse range of international investors. The initiative has underlined the ability of the financial sector to make a tangible difference in the fight against climate change. It offers investors exposure to emerging markets, mitigates the risks via the IFC’s first-loss position, and makes a positive impact on the environment through the purchase of green bonds. The fund will act as a useful template for other financial institutions to emulate, as well as give more investors the confidence to put money into companies and projects that benefit the environment in emerging markets. It will also encourage more companies across emerging economies to conform to the Green Bond Principles as a means of opening up another source of funding.