APG is to invest over 500 million euros in green mortgages for pension funds ABP, bpfBOUW and SPW through Rabobank subsidiary Vista. Two birds with one stone: a good long-term return for members and a contribution to the sustainability of the Netherlands, explain Menno van den Elsaker and Kay Mennens.

An old Dutch nursery rhyme begins with the words ‘In Holland is a house’. Now, in 21st century Holland, there are as many as 7.5 million houses, all of which under the coalition agreement must have energy label A by 2030 and be energy neutral by 2050. All these houses have to be adapted to meet the new sustainability requirements. A major social challenge: how do we get this done together, and who will pay for it?

Investing a billion in five years

ABP, bpfBOUW and SPW plan to contribute to this by investing over 500 million euros in sustainable mortgages of the new provider Vista, a Rabobank subsidiary. Vista acts as the 'managing partner': the pension funds provide financing, Vista the provision of the mortgage to the consumer and administrative settlement. ABP, bpfBOUW and SPW plan to invest through APG a billion euros in Vista mortgages over the next five years, about half of which will be sustainable. For comparison; ABP invests 19 billion euros in mortgages worldwide of which 4 billion in the Netherlands.

Sustainability discount on mortgage interest

Vista's green mortgage offers an 0.1 percent interest discount to customers who make their homes more sustainable to meet the requirements of energy label A during the term of the mortgage, or who buy an existing or new house that already meets that requirement. The investment fits in with the ambition of ABP, bpfBOUW, SPW and APG to invest more sustainably and frequently in the Netherlands. In addition, mortgages also provide a stable, long-term and sustainable return for the pension fund member, say Menno van den Elsaker and Kay Mennens, who are responsible for the investment at APG.

Interest rates are historically low. How can investing in mortgages still yield an attractive return?

Menno van den Elsaker: ‘This low interest rate applies not only to mortgages, but even more so to government and corporate bonds. Viewed in this light, investing in mortgages still provides a relatively attractive long-term return.’

Kay Mennens: ‘We can earn 1 to 1.25 percent extra on mortgages compared to corporate bonds. Also, investing in mortgages involves only a limited risk. Experience shows that Dutch homeowners faithfully meet their payment obligations.'

How did the idea for a sustainable mortgage come about? 

Van den Elsaker: ‘In 2018 we were approached by Vista to work together on mortgages. We were the first investor to join, so we were able to put our wishes on the table. We made our investment subject to the condition that at least half of the mortgages would be linked to sustainability. This fits in well with the sustainability agenda of APG and the pension funds, but also with that of Rabobank, as the parent organization of Vista.'

Why don't you invest that whole billion in green mortgages? At present, half of it still goes to grey, non-sustainable mortgages.  

Mennens:  ‘Approximately 28 percent of the collateral for our investment is currently green (i.e. newbuild or existing homes with energy label A). That means that if you only invest in green mortgages, you exclude the majority of consumers. We also feel that it’s important for consumers to think about their existing home if it is not yet green. That’s why Vista makes it possible for customers to receive the sustainability discount from 1 April if they make their home more sustainable during the mortgage term.’

How green are these mortgages? The consumer is given an 0.1 percent discount on the interest. On an average mortgage of 250,000 euros, that’s 250 euros a year. Is that enough to encourage consumers to invest in an energy-efficient home and compete with other green mortgages?

Mennens: ‘That might not seem much an annual basis, but over the entire term of the mortgage we're talking about thousands of euros. There aren't yet many other green mortgage providers. Compared to that, Vista offers a simple sustainable mortgage with a relatively quick procedure for its provision. Other suppliers sometimes link the discount to stricter sustainability requirements, which raises the threshold for the consumer.'

Van den Elsaker: ‘Other than that, in the future we’ll be able to work with Vista on tweaking discounted rates, sustainability requirements and volume, depending on how the market develops. It's also the intention that in the coming years other large investors will also join for more volume.’

Do you dream of greening APG's global mortgage portfolio as well?

Van den Elsaker: ‘Our primary objective is to achieve a good pension for the members. That means constantly finding the right balance between the desired long-term return and investing the money as sustainably as possible. Greening the mortgage portfolio is part of this. We see this as a good first step.’

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