Green and social bonds ‘not more risky’ than conventional bonds

The credit risk of a GSS bond is identical to that of a conventional bond from the same issuer, and so tends to carry the same credit ratings, according to Sascha Stallberg, who runs a green bond fund at Nordea.

“Looking at the technical picture, several studies have shown that the historical volatility of green bonds is slightly lower than that of conventional bonds,” he added. “This is attributed to a more long-term focused investor base in green bonds, such as pension funds.”

But Stallberg also said these differences are minor, and that one should not expect a fundamentally different risk-return profile from a portfolio of GSS bonds when compared to identically rated conventional bonds.

Even for investors not interested in ESG, there is not a strong argument against investing in GSS bondsSascha Stallberg, Nordea Asset Management

In terms of yield, Stallberg said GSS bonds trade similarly to conventional bonds, but can differ by a small ‘greenium’, i.e. a yield disadvantage of a green bond versus an otherwise identical conventional bond.

“The ‘greenium’ along the German government bond curve currently varies between -4bps {basis points} and +2bps,” he added. “As such, individual green bonds can even have a marginally higher yield than the respective conventional bonds.”

Even for investors who are not interested in ESG, Stallberg said there is not a strong argument against investing in GSS bonds, particularly in the absence of a meaningful ‘greenium’.

Several social and green bond funds have launched over the past few months, including the CT Global Social Bond Fund, the Goldman Sachs USD Green Bond Fund and the UBS (Lux) Fund Solutions – Global Green Bond ESG 1–10 UCITS ETF.

Chloe Cheung is a senior features writer at FTAdviser