For professional use only
Month ending 30 June 2017
NN Euro Green Bond
Strategy Brief
Portfolio Management
Bram Bos
Co-Lead Portfolio
Manager
Experience since: 2001
With firm since: 2015
Alfred Meinema
Co-Lead Portfolio
Manager
Experience since: 2000
With firm since: 2008
Supported by 4 Portfolio Managers, 14 Analysts and
2 Traders. Average years of experience: 16
NN Euro Green Bond strategy has been awarded
with LuxFLAG Climate Finance Label, April 2017
ESG
Int
io n
lu
t ri
ct
tio
Re s
ns
hip
ers
wn
ion
rat
eg
Activ
eo
Responsible Investing Approach
s
SR
IS
o
Strategy Description
The Euro Green Bond strategy mainly invests in a portfolio of green bonds of high
quality (with a rating of AAA to BBB-) mainly denominated in Euro. Green bonds are
bond instruments where the proceeds will be applied to finance or re-finance in part
or in full new and/or existing projects that are beneficial to the environment. The
strategy may invest in bonds with a higher risk (with a quality rating lower than BBB-)
up to 10% of its net assets. To determine our eligible universe, we check if the selected
bonds adhere to the Green Bond Principles as formulated by the International Capital
Market Association. Furthermore issuers are screened using exclusionary screening.
Issuers with serious and structural issues concerning environmental controversies are
excluded.
Objective
We actively manage the fund with a focus on bond selection. We aim to beat the performance of the Bloomberg Barclays MSCI Euro Green Bond Index.
Investment Process
Once the eligible universe is determined, we combine our analysis on specific issuers
of bonds with a broader market analysis to construct the optimal portfolio. We aim to
exploit differences in valuations of issuers of bonds within sectors and differences in
valuations between sectors and different quality segments (ratings). As issuer specific
risk is an important driver of performance, we subject all issuers in the investable universe to an in-depth analysis of business and financial risk.
Contribution to Process and Returns
HIGH Security Selection
Based on bottom up credit research
aimed at identifying unrecognized
value ahead of consensus.
For more information about our
responsible investing approach LOW
within Euro Green Bond,
please visit the strategy page
Key Elements of the Strategy
at www.nnip.com
NN Investment Partners at a Glance
NN Investment Partners is the asset manager of NN Group N.V.,
a publicly traded corpora­tion. NN IP is head-quartered in The
Hague, The Netherlands. NN IP manages in aggregate approximately EUR 194 bln* (USD 208 bln*) in assets for institutions and
individual investors worldwide. NN IP employs over 1,100 staff
and is active in 15 countries across Europe, U.S., Latin America,
Asia and Middle East.
* Figures as of 31 March 2017
For more information on NN IP’s investment strategies or our
mutual funds, please contact your sales representative or
relationship manager. Or visit our website www.nnip.com
HIGH
Top Down Allocation
Based on our view on sectors, credit quality, credit
market beta, duration and
curve positioning.
LOW
• Investments with a direct and measurable impact on the environment
The strategy offers investors the opportunity to green their investment grade fixed income exposure at no additional costs
• Independent assessment of adherence to the Green Bond Principles
The strategy aims to ensure that the investments are truly green and not green
washed as anyone can claim it is a green bond. We prefer second party opinions but we will always make our own independent assessment
• Exclusionary issuer screening on environmental criteria
We apply an additional issuer screening on environmental criteria which further enhances the prevention of greenwashing
• First benchmarked and actively managed green bond strategy
By integrating our credit skills and ESG experience we are able to produce
stable and consistent outperformance while investing with Environmental impact
• In-house fundamental analysis
Our in-house bottom up credit analysis by our experience credit analysts is essential to identify and exploit relative value opportunities ahead of the market and avoid credit losses
www.nnip.com
NN Euro Green Bond - Strategy Brief
Reference performance for this strategy: NN (L) Euro Green Bond (I Cap, EUR), gross of fees*
1 Month
3 Months
6 Months
YTD
1 Year Since Inception (Ann.)
Portfolio Return
-0.77
0.67
0.52
0.52
-0.19
2.15
Benchmark Return
-0.74
0.75
0.38
0.38
-0.61
1.16
Relative Return
-0.03
-0.08
0.14
0.14
0.42
0.99
* Source: NN IP Performance Measurement. Benchmark: Bloomberg Barclays MSCI Euro Green Bond Index. Returns are presented after all transaction costs, but
before management fees. Returns include the reinvestment of income. Fund was launched on 1 March 2016.
Past performance is no guarantee of future results and the possibility of loss does exist.
Main Points
• NN (L) Euro Green Bond returned -0.77% in June and
posted an underperformance of -0.03%. The performance in 2017 of the fund is +0.52%, outperforming the
benchmark with +0.14%
• New issuance in June ended at EUR 6.9bn, which brings
the new issuance for 2017 at EUR 48bn
• We added the first green bond issued by a Chinese issuer
and the first green bond issued by an Indian issuer
• Five new issuers were added to the fund. The total number of issuers in the portfolio is 61 (80 holdings)
Credit Market Review
Global Investment Grade Credit spreads tightened modestly during the month of June as the political uncertainty that led to an
increase of risk aversion during the second half of May subsided.
European credit markets responded positively to developments in
Italy, where a possible multi-party deal on a new electoral law
unraveled, lowering the probability of early elections in 2017. The
following weekend, the anti-European Five Star Movement party
suffered a significant setback in local elections and this increased
the probability for the ruling Democratic Party to hold on to their
position as the country’s largest party in Parliament after the next
elections in Italy. This led the European Investment Grade Credit
market to modestly outperform the U.S. Investment Grade Credit
market, which also saw some drag from the underperformance of
its Energy sector, in response to the drop in oil prices over the
month. In Europe, markets were supported by political developments as well as regulatory intervention in the Spanish and Italian
banking sectors.
Green Bond Market Review
Global isssuance of green bonds remains very strong. New issuance in June ended at EUR 6.9bn, which brings the new issuance
for 2017 at EUR 48bn. For the whole year 2017 we expect another
record year in terms of new issuance (more than EUR 100bn). This
would bring the global green bond market size to over EUR 250bn.
Berlin Hyp (Aaa) issued its third green bond, a 6 year EUR 500mn
covered bond. This is their second green covered bond. The proceeds are used to finance mortgages on green commercial real
estate. The second party opinion was provided by Oekom. We
know the issuer very well and participated in this new issuance as
we think the issuance was attractively priced versus the other
AAA bonds in portfolio.
Tennet (A3, A-) issued a dual tranch green bond. Tennet has
issued a 8 and 12 year green bond for each EUR 500mn. This was
already their 7th and 8th green bond, which brings Tennet’s total
outstanding amount in green bonds to EUR 4.5bn (57% of their
public debt). Proceeds are used for the same projects as their
previous green bonds: building infrastructure to connect offshore
wind to the grid. The green bonds are eligible, but we did not participate as Tennet bonds are expensively priced.
China Three Gorges (A1,A+) issued its second green bond (EUR
650mn, 7yr). Their first green bond was controversial, as it was
financing large hydroelectric dams, which did not give market participants enough transparancy on the social and environmental
side effects. For this issuance the green bond is not including large
hydro projects, but includes offshore wind in Europe only. EY gave
a second party opinion on the green bond and the level of engagement was high according to Chinese standards. We participated
in this new issuance and this is the first Chinese issuer we added
to the portfolio.
Apple (Aa1, AA+, AA+) issued its second green bond (10yr, USD
1bn). Proceeds are used for a broad range of categories, but we
expect the largest part will be used for renewable energy and
green buildings (in line with their first green bond). Sustainalytics
gave a second party opinion. The impact report Apple published
on their first green bond has met the highest standards. We participcated in this new issuance.
Intesa Sanpaolo (Baa1, BBB-, BBB) issued its first green bond. The
maturity is 5 years and amount issued EUR 500mn. After Hera and
Enel this is the third Italian issuer of green bonds and the first
Italian bank. Proceeds are used for renewable energy, energy efficiency and green buildings. Vigeo gave a second party opinion
and they seek a third party to verify their impact report. We participated in this new issuance.
Regie Autonome des Transports Parisiens (Aa2, AA) issued its first
green bond with a maturity of 10 years for an amount of EUR
500mn. Proceeds are fully used for clean transportation (e.g.
100% electrical buses by 2025). Vigeo gave a second party opinion and the commitment on reporting seems very strong. We participated in this new issuance.
Nordea (Aa3, AA-, AA-) issued its first green bond with a maturity
of 5 years and an amount of EUR 500mn. Proceeds will mostly be
used for green buildings and renewable energy. Oekom gave a
second party opinion and will also verify the impact report. The
bond is eligible, but we did not participate in the new issuance as
the issuance spread was not attractive.
Korean Development Bank (Aa2, AA, AA-) issued its first green
bond with a floating coupon a maturity of 5 years and an amount
of USD 300mn. Proceeds are used for renewable energy and
Sustainalytics gave a second party opinion. The bond aligns with
our criteria, although we did not participate in this new issuance
as the spread was not attractively priced at issuance.
Adif-Alta Velocidad (Baa3, BBB+) is the Spanish high speed rail
2
Month ending 30 June 2017
network constructor and operator. They issued their first green
bond with a 6 year maturity and a size of EUR 600mn. Proceeds
are used for new rail lines as well as upgrading their existing rail
system to make it more energy efficient. Cicero provided the second party opinion and Adif seems very committed to issue more
green bonds. After Iberdrola, this is the second green bond issuer
from Spain. We participated in this green bond issuance.
European Investment Bank (Aaa,AAA) issued an EUR 1bn, 30 year
green bond. EIB is the largest green bond issuer and the green
bond framework is very credible. We did not participate in this
green bond as we already hold European Investment Bank green
bonds and do not think that the issued bond is attractive at this
moment.
Rural Electrification Corporation (Baa3, BBB-) issued an USD
450mn, 10 year green bond. REC is one of the two large government backed power sector lenders in India. It is India’s central
agency for funding rural electrification projects. The proceeds of
the green bond will be used exclusively for renewable energy projects in India (both new and existing projects). The bond is certified by Climate Bond Initiative and aligns with the highest standards. We participated in this new issuance and this the first Indian
green bond in our portfolio.
Engagement and dialogue
We engaged in June with 6 (prospective) green bond issuers. We
discussed with Nordea their green bond framework and compared
it to its Swedish peer SEB. We concluded that Nordea’s green
bond framework was of much higher quality than SEB’s green
bond framework. One of the key differences is that they clearly
excluded hybrid buses in the category clean transportation. Also,
their commitment to reporting is above average.
We also attended the annual Green Bond Principles conference
2017 in Paris. There were some changes announced to the new
version of the Green Bond Principles. The most important changes
are that green buildings has been added as new category, guidance for reporting on sustainable water has been added and the
introduction of the Social Bond Principles and Sustainability Bond
Guidance.
Investment Performance
NN (L) Euro Green Bond returned -0.77% in June and posted an
underperformance of -0.03%. The performance in 2017 of the
fund is +0.52%, outperforming the benchmark with +0.14%.
Interest rates moved higher over the month with yields on German
bunds moving down from 0.30% to 0.47%. The spread on Euro
green bonds tightened to 50bp. Regarding the relative performance our overweight to French agencies had a positive contribution however this was partly offset by our underweight to French
government bonds. Our overweight to Banking Senior detracted
from performance.
Outlook and Portfolio Positioning
Macro-economic data has generally been surprising on the upside
this year, which bodes well for corporate earnings. While in itself
this is positive for Global Investment Grade Credit markets,
stronger growth is also likely to lead to tighter monetary policy,
which could be a negative surprise for financial markets as the
expansion of central bank balance sheets has been supporting a
rise in asset prices in recent years. More Fed hikes and the start of
a reduction in the size of the Fed’s balance sheet could weigh on
the global economy, with high levels of leverage particularly in the
corporate sector. Monetary policy may become a concern for
European Investment Grade Credit markets as well. The ECB has
extended purchases under its Asset Purchase Programmes until
December 2017 and has created some leeway for purchases of
bonds at yields below its deposit rate. While the ECB has lowered
the monthly amount of asset purchases to EUR 60 bln., based on
its purchases in Q2 2017 it has been targeting government bonds
mostly in its reduction of purchases. Nevertheless, scarcity of eligible government bonds may again become a problem towards
the end of the year. This could pose constraints on the ECB’s monetary policy in 2018. Particularly in light of the recent improvement
in European macro data, and a significant reduction in government bond purchases would clearly have an impact on corporate
bond markets as well.
We have added 7 new issues in the portfolio in June in EUR (Berlin
Hyp, China Three Gorges, Intesa Sanpaolo, RATP, ADIF) and USD
(Apple, Rural Electrification). Currently we are holding 80 green
bonds in portfolio from 61 different issuers in 5 different currencies. We still hold overweights to USD denominated green bonds,
emerging market green bonds and underweights to supranationals and agencies. We have partially hedged our holdings in
Brazilian green bonds by buying protection (CDS). Going forward
we are still looking to diversify the portfolio. We are not holding
any non green bonds in the portfolio.
3
NN Euro Green Bond - Strategy Brief
Portfolio Highlights*
Portfolio Statistics
Portfolio Statistics
Currency
EUR
Strategy Assets under Management
Option Adjusted Spread
€113 mln
Yield of the portfolio
0.98%
Duration
8.42
64bp
Number of Issuers
61
Number of Issues
80
Effective Rating
A+
Rating Positioning Market Value
35%
30.51%
30%
Portfolio
25%
21.82%
19.53%
20%
15.34%
12.85%
15%
10%
5%
Benchmark
25.51%
4.52%
1.80%
--
0%
Cash & FX
AAA
4.94%
2.49%
7.76% 6.86%
3.79%
10.33%
7.45%
4.12% 3.34%
6.74%
4.72%
3.27%
1.91%
--
AA+
AA
AA-
A+
A
A-
BBB+
BBB
BBB-
0.40%
--
BB+
--
BB
Rating Positioning Duration x Spread
250
Portfolio
200
160.97
Benchmark
173.83
150
94.65
100
67.26
61.41
50
--
0
--
21.44 27.89
17.50
17.89 11.79
3.85
15.55 8.67
31.19 27.39
51.99
43.60
29.85
37.34
33.59
--
--
-(8.90)
-50
Cash & FX
AAA
AA+
AA
AA-
A+
A
A-
BBB+
BBB
BBB-
BB+
BB
Sector Positioning Market Value
40%
Portfolio
30.84%
Benchmark
30%
22.50%
20%
12.95%
10%
1.80%
0%
15.49%
10.48% 10.13% 10.35%
8.76%
14.68%
8.36%
6.85% 7.58%
9.95%
5.39%
3.57%
5.29%
0.00%
1.87%
0.00%
1.83%
0.00%
1.60% 2.50%
1.17% 1.26% 1.14% 1.64% 1.08% 0.00%
0.47% 0.00% 0.46% 0.00%
Sector Positioning Duration x Spread
250
Portfolio
194.43
200
150
119.07
115.59
100
77.90 74.13
37.60 29.30
50
0
-
-
Benchmark
55.09
8.38 16.49
20.88 26.53
35.28
22.00
37.09
3.63 4.82
-
8.93
-
7.69 16.34
2.66 2.86
1.99 2.78
2.49
-
1.87
-
2.91
-
* Source: NN Investment Partners. All data are expressed as of 30 June 2017.
4
NN Euro Green Bond - Impact Report
Month ending 30 June 2017
Annual Green House Gas Emissions Avoided (tons CO2)
Reported Impact*
Full NAV of the Portfolio**
Portfolio
46,656
Per 1 million invested:
412
Portfolio
80,443
Per 1 million invested:
711
The CO2 emissions saved per 1 mln invested in our fund are equivalent to the average annual emissions of:
92 households**
284 passenger cars**
or
Top 5 Positive Contributions to GHG Reduction - Absolute
Top 5 Positive Contributions to GHG Reduction - Weighted
National Australia Bank
Export Development Canada
EDF
KFW
EBRD
1
2
3
4
5
EDF
EIB
KFW
National Australia Bank
Iberdrola
1
2
3
4
5
* GHG reduction reported by following share of portfolio: 58.0%
**based on the average GHG reduction profile of 58.0% of the portfolio
** source: milieucentraal 2016
Breakdown of Projects by Region*
Breakdown of Projects by Use of Proceeds*
60%
80%
70%
50%
60%
40%
50%
30%
40%
30%
20%
20%
10%
10%
0%
Developed Europe
North America
Latam & Carribean
Asia
Australia
Africa
Emerging Europe
0%
Alternative Energy
Low-carbon
transport
Green Building
Energy Efficiency
* based on following share of portfolio: 92.4%
* based on following share of portfolio: 93.3%
Use of Proceeds for New Versus Existing Projects
External Assurance
70%
90%
60%
80%
Other
Sustainable Water
Pollution
Prevention and
Control
70%
50%
60%
40%
50%
30%
40%
30%
20%
20%
10%
10%
0%
0%
New Projects
Exisiting Projects (refinancing)
Second Party Opinion Pre-issuance
Auditing/Verification Impact Report
CBI certification Pre-issuance
Global Green Labelled Bonds Assessed by NN IP
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Labelled green bonds rejected
Labelled green bonds accepted
5
NN Euro Green Bond - Impact Report
UN Sustainable Development Goals Exposure*
94%
100
CLIMATE ACTION
72%
80
AFFORDABLE AND
CLEAN ENERGY
45%
60
INDUSTRY,
INNOVATION AND
INFRASTRUCTURE
46%
SUSTAINABLE CITIES
AND COMMUNITIES
40
12%
14%
20
0
SDG6
19%
10%
RESPONSIBLE
CONSUMPTION AND
PRODUCTION
CLEAN WATER AND
SANITATION
SDG7
SDG9
SDG11
SDG12
LIFE ON LAND
LIFE BELOW WATER
SDG13
SDG14
SDG 15
* Portfolio positions can have exposure to multiple SDG themes.
In September 2015 the United Nations agreed on 17 Sustainable
Development Goals (SDGs) to end poverty, protect the planet and ensure
prosperity for all. Each goal has specific targets to be archieved by 2030.
The UN’s SDGs are a set of ambitious targets for making the world a better place. The chart above shows the exposure of the Euro Green Bond
Strategy to different SDGs. All the Green bonds in the portfolio are truly
green and have a positive impact on climate change mitigation. As a result
the exposure to Climate Action (SDG13) is almost 100%, only adjusted for
the cash position. The proceeds of many green bonds are used for alternative energy, hence the exposure to Affordable and Clean Energy (SDG7)
is also high.
Green STORM 2017 (2064)
Use of Proceeds
Key figures
Green building (100%)
Rating
AAA
ISIN
XS1609025744
Second Party Opinion
Sustainalytics
Nominal
EUR 550 million
The proceeds will finance a pool of residential mortgages issued by
Obvion, a wholly-owned subsidiary of Rabobank. The bond will
refinance a pool of mortgages that adhere to specific green eligibility
criteria. The green STORM is an asset-backed security, i.e. there is no
recourse to the issuer.
Example projects
• The security will finance homes built after 2002 if those are
in the top 15% in terms of energy performance. Homes built
before 2002 will be eligible if they have achieved a 30%
energy performance improvement, corresponding to 2
notches on the standardized Dutch energy label scale.
Image: from Rabobank website
• Around 94% of the provisional pool consists of buildings
with an A or B energy label; where A is highest and G is
lowest.
* For illustration purpose only. Company name, explanation and arguments are given
as an example and do not represent any recommendation to buy, hold or sell the
stock. The security may be/have been added and/or removed from any portfolio at
any time without any pre-notice.
6
Month ending 30 June 2017
Currency
Max Management
Fee (%)
Fixed Service
Fee (%)
Ongoing charges including
management fee (%)
Minimum Investment
LU1365052627
EUR
0.20
0.12
0.33
€ 250,000
I Capitalisation Duration hedged
LU1503158328
EUR
0.20
0.12
0.33
€ 250,000
N Capitalisation*
LU1365052890
EUR
0.20
0.15
0.40
-
Z Distribution
LU1365053351
EUR
N/A
0.12
0.13
€ 5,000,000
Share Classes
ISIN
I Capitalisation
* only available for the Dutch market
Key Characteristics of the Strategy
Objective
Investment objective
Outperform the Bloomberg Barclays MSCI Euro Green Bond Index
Benchmark
Bloomberg Barclays MSCI Euro Green Bond Index
Other Characteristics
Investment universe
• Global Green Bonds, according to NN IP’s interpretation of the Green Bond Principles
• Allocations to opportunities in non-euro denominated issues (max 30%; to be hedged)
Rating
Max 10% can be invested in sub-investment grade positions (BB+,BB,BB-)
Duration
Max. 1 yr. active duration position versus the benchmark
Currency
No currency risk versus the benchmark, hedging of non-EUR exposures
Disclaimer
This document has been prepared solely for promotional purposes and does not
constitute an offer, in particular a prospectus or any invitation to treat, buy or sell
any security or to participate in any trading strategy and cannot be understood as
provision of investment services. The content of this document is based upon
sources of information believed to be reliable. However, no guarantee, warranty or
representation, express or implied, is given as to the accuracy, correctness or completeness of such information; and neither NN Investment Partners B.V., NN
Investment Partners Holdings N.V. and its subsidiaries, nor any other company or
unit belonging to the NN Group, nor any of its officers, directors or employees
accept any liability or responsibility in respect to the information or any recommendations expressed herein. Any information given in this document may be subject to
change or update without notice. Investment sustains risks. Please note that the
value of your investment may rise or fall and also that past performance is not indicative of future results and shall in no event be deemed as such. Do not take unnecessary risk. Read the Key Investor Information Document. The prospectus, supplement and the Key Investor Information Document are available on the following
website: www.nnip.nl. Any claims arising out of or in connection with the terms and
conditions of this disclaimer are governed by Dutch law.
The fund is a subfund of NN (L) (SICAV), established in Luxembourg. NN (L) is duly
authorised by the Commission de Surveillance du Secteur Financier (CSSF) in
Luxembourg. Both funds are registered with the CSSF.
For more detailed information about the investment fund we refer to the prospectus
and the corresponding supplements. In relation to the investment fund mentioned in
this document a Key Investor Information Document (KIID) has been published containing all necessary information about the product, the costs and the risks which
may occur. Do not take unnecessary risk. Read the prospectus and the KIID before
investing. Investments are accompanied by risks. The value of your investments
depends in part upon developments on the financial markets. In addition, each fund
has its own specific risks. See the prospectus for fund-specific costs and risks. The
prospectus, supplement and the Key Investor Information Document are available
on the following website: www.nnip.com. This document is not directed at, and must
not be acted upon by citizens of the United States (US) and is otherwise only
directed at persons residing in jurisdictions where the relevant share classes/(sub)
funds are authorised for distribution or where no such authorisation is required.
7