Fixed-income securities – including commercial paper, notes, bonds, and non-publicly traded instruments like loans and private placements – are a significant component of capital markets. Debt holders possess substantial sway in encouraging companies and governments towards environmentally and socially responsible operations.
In the United States, bonds cover around 64% of non-financial corporations’ financing, according to data from the Securities Industry and Financial Markets Association (SIFMA). This substantial proportion alone underscores the influence that bondholders can exert in corporate decision-making Additionally, bonds mature and thus unlike equity, firms must continually go back to investors to purchase their new issuance.
Given their considerable role in financing corporates, fixed-income managers can utilise their influence to promote issuers to adopt more sustainable practices, contributing to broader ESG objectives. Modern fixed income management enables the dissection of an issuer’s credit exposure from the bond’s duration and currency risks, leading to a more precise analysis of ESG impacts.
To support this precision, we provide factual ESG impact data for all listed corporate and sovereign issuers. This data offers granular, outcome-based insights on over 150 ESG, climate, and impact measures. It enables investors to compare bond funds, separating fact from branding.
To illustrate, we analysed two corporate bond funds using our platform: The Rathbone Ethical Bond Fund (“Sustainable Fund”) with US$2.6bn in assets under management (AUM) and the M&G Strategic Corporate Bond Fund (“Standard Fund”) with US$1.4bn AUM. Both funds were benchmarked against the Global Corporate ICE BofA index.
Fixed-income managers can utilise their influence to promote issuers to adopt more sustainable practices.
Rathbone Ethical Bond (green) vs M&G Strategic Corporate Bond Fund (blue). As with all of our spider diagrams, the further toward the outside edge, the better performing the fund is for that metric.
The Sustainable Fund exhibited an 18bps net impact compared with the Standard Fund’s 6bps, This result signifies a threefold ESG impact for the Sustainable Fund.
Among our 15 corporate impact measures, the Sustainable Fund outperformed the Standard Fund in 11 categories. A comprehensive analysis of each fund’s issuers’ products and services revenues unveiled that the Sustainable Fund has 1.29% of revenues from net environmentally good products and services, such as renewable energy, while the Standard Fund holds net environmentally harmful revenues from activities like oil and fuel refining.
The Sustainable Fund’s portfolio had more than 3% of revenues from socially beneficial products and services (like healthcare and insurance products), while the Standard Fund had net socially harmful products and services revenues (such as Tobacco products). Hence, the sustainably focused fund seems to validate its merit in this case.
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