Stockholm (NordSIP) – Bond investors, especially those focusing on sovereign debt, have been slow to catch up with their equity peers when integrating ESG into their portfolios. And although there has been a significant pick-up in activity and a flurry of new products hitting the market in recent years, the old perception about a lack of viable sustainable fixed income alternatives persists.
Luckily, this did not prevent Swedish pension and insurance giant Länsförsäkringar (LF) from doing their job and initiating a search for bond funds that live up to their and their clients’ higher sustainability expectations and requirements. Last week, LF announced that they would be replacing three of the funds across their platforms with sustainability-focused alternatives at the end of August. Investments in BlackRock Emerging Market Local Currency Fund will be redirected to BlackRock ESG Emerging Markets Bond Fund. At the same time, the current default options of JP Morgan Global Bond Opportunities and JP Morgan Global Strategic Bond funds will both be swapped for JP Morgan Global Bond Opportunities Sustainable fund.
The new funds, chosen by LF, fall under Article 8 of the EU’s Sustainable Finance Disclosure Regulation (SFDR), which means they promote environmental or social characteristics but do not have those as their overarching objective. Despite choosing a lighter shade of green, however, introducing a more distinct ESG tilt to the fixed income funds range is a step forward for LF and their sustainably minded clients.
Commenting on potential tradeoffs between financial returns and sustainability objectives, Anders Landström, Head of Manager Research at LF Life AM, notes that many managers have been able to enhance their current strategies with sustainability features that make the strategies more compelling. “We have a positive view of this development,” he explains. “In the new funds offered on our platform we don´t believe that you need to give up returns to reach a more sustainable outcome over the long run. The return pattern might be slightly different in the short term, given the more sustainable approach, but over the long term we believe the returns will keep up well.”
According to Landström, the changes are part of LF’s initiative to increase the overall sustainability level in the fund offering. “Further changes can be expected going forward,” he concludes.