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Japan's pension fund strikes green bond partnership with Nordic Investment Bank

Japan's Government Pension Investment Fund said Oct. 1 that it is working with Nordic Investment Bank to gain access to "environmental bonds," part of a broader effort by the Japanese fund manager to "promote ESG integration into fixed income investment."

The Government Pension Investment Fund, or GPIF, which has about $1.6 trillion of assets under management, has been shifting its equity holdings to indexes with environmental, social and governance themes, including a pair of "carbon-efficient" indexes that overweight companies with low carbon-to-revenue footprints and those that actively disclose information on carbon emissions. The goal is to push companies to "enhance their responses to ESG issues" and improve "corporate value in the long term," according to GPIF's 2018 annual report.

However, GPIF has had a harder time finding ways to make environmental investments in the fixed income market, Hiromichi Mizuno, the fund manager's chief investment officer, said Sept. 25 at the Bloomberg Global Business Forum in New York. GPIF has been investing in green bonds, but "we require [a] much, much ... quicker shift of the market to achieve" the goals of the Paris Agreement on climate change, the official said.

Under the partnership with Nordic Investment Bank, GPIF asset managers will be able to invest in bonds that are used to pay for "the transition to a low-carbon economy," according to a news release. in August, GPIF announced a similar partnership with the Asian Development Bank.

"GPIF wish to contribute to make Green, Social and Sustainability bonds mainstream investment products in order to ensure the sustainable performance of the pension reserve fund for all the generations," Mizuno said in a statement.

Lars Eibeholm, treasury head at Nordic Investment Bank, said incorporating sustainability assessments into investment decisions "is crucial for redirecting capital flows."

Debt issued for climate or environmental projects topped $100 billion for the first half of 2019, marking the first time that milestone has been reached during the opening six months of a year, according to the Climate Bonds Initiative. The group said it expects annual green bond issuances to reach $250 billion in 2019, up from $168.5 billion in 2018.

"[There's] been a big growth in green bonds," Goldman Sachs Group Inc. Chairman and CEO David Solomon said at the Bloomberg event in New York. However, the asset class is still "very small" relative to overall capital markets activity. "And so the question is, how do you find things that more mainstream this into the capital markets?"

Goldman Sachs manages a GPIF equity portfolio.