22 June 2015

About 90% of Aviva Investors' clients now ask about ESG criteria

There is increasing demand for green bonds from investors, according to Colin Purdie, head of global investment-grade credit at Aviva Investors.

And in 90% of requests for proposals from asset management clients, the firm -- the global asset management business of UK-based insurer Aviva – is asked about how it incorporates environmental, social and governance (ESG) criteria into its funds.

Purdie, speaking at the Green Bonds 2015 conference in London today, stressed that Aviva Investors considers green bonds for all its funds, provided certain criteria are satisfied such as sizes, ratings and liquidity of issues, as well as yields. "We don't have segregated SRI [socially responsible investing] funds," he stressed.

"Green bonds are a way of showing that we take ESG seriously," he explained. "We incorporate it into the research done by our large team of credit analysts."

The team did a lot of ESG work previously before the term became popular, for example, on utilities. But more recently extra costs have had to be incurred to deal with green bonds, such as on training more analysts and buying in external research. There is a cost in time too, he said, "but the potential benefits are huge. You get better-informed investors and ultimately better rewards."

For corporate bonds, the holding period is a lot longer than for SSAs [sovereigns, supranationals and agencies] and the yields a lot higher, so the due diligence Aviva Investors carries out is that much deeper, noted Purdie. He also said green bond indices could do with the addition of few more companies to increase diversity. "This will bring the next kick forward in the market," he observed.

But he also said he couldn't understand why more companies weren't issuing green bonds. "The demand is there" and right now, "it's cheap to issue across maturities and currencies."

More standardisation of the green bond market might help, provided some flexibility was maintained through a loose set of principles. Getting standardisation ticked off on the to-do list "would encourage investors and issuers alike."

Green Bonds 2015 was organised by Environmental Finance, a sister publication to Insurance Asset Risk.

Channels: 
SAA/ALM
Companies: 
Aviva Investors
People: 
Colin Purdie