Sweden’s AP2 Sees a Green Bond Explosion in Public Sector

The country’s state pension buffer says government institutions should swap fossil fuels for alternative energies in the next 10 years.

Swedish pension buffer AP2 is expecting the public sector to see a green bond rush in the next decade.

A report from the $38.9 billion fund that serves as one of the five backup plans for the nation’s pension system said that municipalities and other “government-related institutions” should look to convert from fossil fuels to alternative energies such as solar, wind, and hydroelectricity in the near future.

The fund also said that infrastructure is one of the areas that needs attention right now, especially in the transport sector. It also noted that property with “good environmental performance or investment for conversion to more energy-efficient real estate” has been picking up as a non-pollutant investment.

AP2 currently holds $633 million worth of green bonds, which go toward raising capital for environmental, social, and governance (ESG) functions. A region where this activity is increasing is Asia, the report said, particularly for technology and sustainable growth.

“We therefore believe a rise in the number of bond issues by municipalities is the natural development,” the report said. “AP2’s portfolio can be expected to continue to grow in line with increasing volumes and increasing opportunities for diversification through more issuers and industries.”

This follows the Netherlands’ recent announcement to issue green government bonds in 2019, making it the first AAA-rated nation to do so.

“When the opportunity to invest in green bonds was introduced in 2008, we saw a unique opportunity to combine global fixed income management and our commitment to climate change,” said Lars Lindblom, AP2’s fixed income portfolio manager.

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