Threadneedle (Lux) European Social Bond

    In Short

    NameThreadneedle (Lux) European Social Bond
    Asset ClassFixed Income
    NordSIP CategoryCore/Impact
    Fund Profile
    Morning Star
    ManagerSimon Bond

    Strategy description

    Targeting ‘social alpha’ without sacrificing financial returns
    A fixed income portfolio that aims to deliver both positive social outcomes and corporate bond market returns, as well as providing daily liquidity.
    We actively allocate capital to outcomes that address real social needs predominantly in Europe,1 using a broad social universe of around 2,000 bonds, which allows us to mitigate any additional credit market risk.

    Positive inclusion, evidence-based analysis and engagement
    Using a dynamic social assessment methodology to quantify social intensity down to the individual bond level, the portfolio manager works with our Responsible Investment analysts to identify the best opportunities based on evidence and engagement with issuing entities.
    In parallel to this, our Investment Grade Credit team evaluates these bonds to ensure they meet the necessary financial requirements for inclusion within the portfolio.

    Strength in partnership
    Our proven experience in both fixed income credit and social investment is enhanced by our social partnership with INCO, an organization focused on the European social economy.2
    INCO is responsible for deepening the research and verifying the social outcomes of investments, as well as forming part of the Social Advisory Panel to review, advise and monitor the Fund’s investments – and report annually to investors – from a social performance perspective.

    Proven track record in social bond investing
    We have successfully managed outcomes-based social bond strategies3for over five years and have over €500 million invested in social bond strategies worldwide.

    1 The Fund targets 80% of securities in the portfolio from geographical Europe.
    2 INCO is a leader in assessing sustainable social businesses and operates under the auspices of Europe’s leading social enterprise: Groupe SOS and Le Comptoir de l’innovation.
    3 The Threadneedle UK Social Bond Strategy was launched in December 2013.

    SRI Highlights

    1. Norm Adherence: we exclude on evidence of violation of key norms and standards such as the UN Global Compact.
    2. Sustainable Energy Focus: we avoid those with material revenue from nuclear energy and coal generation or mining, as well as oil and gas (conventional and unconventional) extraction and generation. In the case of a Green, Social or Sustainability Bond from a utilities issuer usually excluded for these reasons, we may invest where we see efforts to support the transition to a low carbon economy. In any case we will not invest in utilities whose emissions pathways do not comply, based on credible analysis, with a below two-degree scenario.10 All utilities will be subject to our Climate & Energy Transition Engagement process (see Engagement below).
    3. Health Enhancement: we have minimal tolerance for tobacco or alcohol production.
    4. Social Cohesion: we exclude those with material revenue from adult entertainment or gambling. In addition, we expect all firms to recognise the importance of tax management, approached prudently and legally, to both societal contribution and responsible management of their affairs. We thus monitor all firms within the Fund for tax-related controversies, with severe issues triggering review of eligibility.
    5. Weapon Avoidance: we avoid weapons and firearms, with zero tolerance for controversial weapons.
    6. Severe Environmental Impact Avoidance: in addition to seeking investment opportunities which enhance natural capital, we avoid companies with severe controversies related to water or biodiversity and land use.
    7. Controversial regimes: We will not invest in countries with the death penalty, subject to EU sanctions, taking minimal collaborative action on Climate Change,18 or which are oppressing freedoms or taking action which would violate principles of the UN Global Compact. This applies also to wholly stateowned companies. For clarity, where we do invest in government debt this is only via Green, Social or Sustainability bonds.