• EIB first issuer to link green bonds’ use of proceeds to EU Sustainability Taxonomy
  • GPIF regards investments in CABs and SABs as one of the direct methods of ESG integration in fixed income investments

On 27 June, the European Investment Bank (EIB) and Japan’s Government Pension Investment Fund (GPIF) have started a partnership that aims to strengthen their capital market cooperation in the context of an increasingly global effort to promote sustainable finance.

Notably, this cooperation starts just after release by the European Commission’s (EC’s) Technical Expert Group on sustainable finance (TEG) of its first reports on EU Sustainability Taxonomy (EST) and EU Green Bond Standard. EIB contributed to these reports as member of the TEG.

In its 2016 Green Finance Synthesis Report, the G20 highlighted that “in many countries and markets, the lack of clarity as to what constitutes green finance activities and products (such as green loans and green bonds) can be an obstacle for investors, companies and banks seeking to identify opportunities for green investing”.

Official authorities around the world are developing complementary initiatives to tackle this issue. Comparability between taxonomies of different jurisdictions fosters cross-border capital flows. This has been stressed in a recent report by the Network of Central Banks and Supervisors for Greening the Financial System - of which the Japan’s Financial Services Agency is member. The report echoes the two White Papers published by EIB jointly with China Green Finance Committee on The Need for a Common Language in Green Finance in 2017 and 2018.

The EST aims to establish a shared definition of core aspects of sustainability so that a consistent set of standards can be developed for sustainable investment (e.g. green loans and green bonds). EIB has already aligned with the EST the use of proceeds language in the documentation of its Climate Awareness Bonds (CABs, which focus on climate change mitigation) and Sustainability Awareness Bonds (SABs, which focus on other environmental and social objectives). This sets the stage for a gradual extension of project eligibility criteria in line with evolving EU legislation on sustainable finance.

GPIF asset managers consider investment in CABs and SABs as part of a broader effort to integrate environmental, social and governance (ESG) considerations. EIB believes that higher clarity provided by the explicit link to the EST enhances the effectiveness of CABs and SABs in shedding light on the sustainability of the projects that receive allocations from these bonds. This is a welcomed investment opportunity in the context of the ESG-framework set by GPIF for their investment decisions.

Following the recent EU-Japan free trade agreement, which promotes the UN 2030 Agenda and the Paris Agreement, EU and Japan have underlined their commitment to mobilize finance for sustainable growth in a joint statement at their April summit. EIB welcomes this joint endeavour and looks forward to putting it on a tangible footing in the capital markets. The partnership with GPIF voices the commitment of leading issuers and investors to support sustainability within the framework established by the G20-member countries, which are meeting in Japan on 28/29 June.

Werner Hoyer, President of the EIB: “Today  EIB has laid the first stone of a partnership that aims to support clarity in sustainable finance, underlining the importance of consistent classification and comparable impact measurement  for cross-border, long-term sustainable investment. The largest pension fund and the largest supranational issuer collaborate to take further steps into integration of ESG in fixed income. To promote this idea into the private sector- institutional investors in particular, GPIF is a vital partner, and our cooperation will send a strong signal to the industry.

Hiro Mizuno, Executive Managing Director and CIO, GPIF: “GPIF requires all asset managers to integrate ESG into their investment analysis and decision-making. We regard purchase of Green, Social and Sustainability Bonds as one of the direct methods of ESG integration in the fixed income investment. EIB has accumulated expertise as a spearhead in Europe, which stands foremost in sustainable finance. GPIF values EIB’s knowledge in this area, and looks forward to continuing the dialogue.

Read the GPIF press release