The Credit Market Through SDG Glasses

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    Stockholm (NordSIP) – During a recent visit to Stockholm, Jan Willem de Moor, Senior Credit Portfolio Manager at Robeco Asset Management, shared with NordSIP how he and his team have integrated the Sustainable Development Goals (SDGs) in a new credit strategy. Interestingly, the method takes into account all of the goals and the result is a well-diversified portfolio, which excludes, or meaningfully underweights three sectors which contribute negatively to the SDGs.

    For De Moor, the sustainable strategies his team manages match a high bar in terms of sustainability. “Sustainability is not a challenge for us,” he says. “We have been active for eight years already and our philosophy is fully integrated in our credit analysis. From a bond investor’s perspective, many of the SDG-related criteria we look at makes sense when looking at the potential downside of each issuer.”

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    De Moor’s strategy relies on a method developed by Robeco which assesses each credit issuer relative to the SDGs, on a 7-point scale ranging from -3 to +3. The analysis includes three categories, each contributing to the final score. First, the firm’s products are analysed quantitatively, with the help of proprietary data, and the resulting score relies on given thresholds provided by the extensive set of rules and KPIs established in the RobecoSAM ‘rulebook’. Second, the analysts look at how the companies produce. For instance, a company who reduces pollution and increases its resource efficiency can impact 10 of the 17 goals. De Moor and his analysts scrutinize the issuers and produce a qualitative assessment of the firm’s governance framework, its conduct track record and its environmental policies, for instance. This allows them to differentiate between the firms with the highest positive impact, and those with serious structural breaches, which are immediately downgraded. Beyond the regular conduct of business, the third pillar of the method takes into account controversies, which include events such as oil spills, bribery or emission fraud. The presence of any known controversy can generate negative points for the issuer.

    Out of a credit research universe of approximately 600 companies, the Robeco credit team finds that 60% have a positive contribution to the SDGs, while 24% impact the goals negatively (the remainder showing a neutral result). The positive contributors can for instance be found among grid operators, healthcare, banks and utilities, while the negative ones are mainly producers of unhealthy food, soft drinks or alcohol, car manufacturers or energy companies. Only the positive contributors make it into what De Moor’s team calls the SDG eligible universe. It is from this filtered list of issuers that the credit portfolio’s investments can be selected, by applying a top-down view, which reflects the credit beta targets and top down themes as well as a bottom up issuer selection. In addition, the fund also includes green bonds. The resulting portfolio is overweighting sectors like healthcare and pharmaceutical issuers and utilities, as well as green bonds. There currently is no exposure to the food and beverage sector, which represents 4% of the fund’s benchmark and the energy and auto sectors are heavily underweight.

    “While a few sectors are currently lagging behind when it comes to reaching the sustainable development goals,” says De Moor, “there are more than enough names in the universe to build a global SDG Credit fund for a positive impact. At Robeco, we are committed to making SDGs a cornerstone of our investment strategies and we believe that our close collaboration with RobecoSAM is instrumental in achieving that goal.”

    Image from Pixabay

    Image courtesy of Pixabay
    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA is Editor-in-Chief for NordSIP and Managing Director for Big Green Tree Media. She has 18 years of experience in the asset management industry in Stockholm, London and Geneva, including as a long/short equity hedge fund portfolio manager, and buy-side analyst, but also as CFO and COO in several asset management firms. Aline holds an MBA from Harvard Business School and a License in Economic Sciences from the University of Geneva.
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