More

    Sustainable and Transition Credit Investment Opportunities

    Stockholm (NordSIP) – As the IPCC continues to warn against the dangers of climate change and commitments remain short of bridging the funding gap, asset managers race to find new investment opportunities.

    To address this demand, Schroders hosted an online series of webinars at the start of September discussing sustainable credit opportunities. The event gave NordSIP the opportunity to hear back from Saida Eggerstedt (Pictured), Head of Sustainable Credit and lead portfolio manager for the Schroder International Selection Fund (ISF) Sustainable EURO Credit fund, launched at the end of 2019 and co-PM of the Schroder ISF Carbon Neutral Credit fund launched in June 2021.

    The Sustainable EURO Credit Fund

    According to Eggerstedt, the Sustainable EURO Credit fund is focused on “the themes that dominate the sector.” This approach is reflected in the fund’s investments and in its philosophy.  “I’m not concerned that green bonds might be too expensive,” she says, noting that the focus is on looking “for diversification and have high conviction in the direction of the company – that it is becoming more sustainable and that the bond is helping them to become financially more stable.”

    Within biodiversity, the PM highlighted a company like Tornator “which is doing sustainable forestry and has also issued green bonds”, or Suez, which “takes care of waste and water”. According to Eggerstedt, the high yield market where valuations are more attractive, also offers interesting investment opportunities. “Pfleiderer is a wood company whose sustainability-linked bond was issued to finance the use of 70% recycled wood” she explains.

    “When one considers energy efficiency rather than just renewables, the opportunity set in the fund really expands,” Eggerstedt argues. She notes that beyond technological innovations, there are interesting opportunities in companies that sell more energy efficient products like LEDs, such as Signify. The fund is also looking at tech stocks, Eggerstedt said, pointing towards Faurecia, a hydrogen technology company that has also issued bonds.

    Eggerstedt also noted the importance of the social aspect of sustainability. “When we talk about [the theme of] inclusion and empowerment in sustainable credit, [its important to note that this] is not a sustainable impact fund,” Eggerstedt says. “We are trying to look at women, rural areas and anything that is helping, such as digital inclusion, telebanking,” she explained.

    She also highlighted Storebrand and CityCon as two attractive green bond opportunities in the Nordics. “CityCon had quite a high sustainability standard, thanks to the certification of their buildings and their targets for 2022.” However, the PM explained that what made the Finnish real estate company stand out was their innovative approach. “Some of the shopping malls are being converted into government offices and community centres. That shows that their bonds are a combination of green and social bonds.”

    The Carbon Neutral Credit Fund

    The Schroder International Selection Fund (ISF) Carbon Neutral Credit is an Article 9 (SFDR) fund addressing SDG 7 (affordable and clean energy) and SDG13 (climate action). It’s investment universe is defined by measurements of carbon emissions based on CDP, the Science Based Targets Initiative (SBTI) and proprietary Schroders data search. It is aimed at clients “seeking ambitious and reported carbon intensity improvement.”

    The fund included 155 companies from a range of themes and sectors, as of the Summer of 2021. It invests in leaders who are on track to achieve Scope 1 and 2 carbon neutrality by 2025 or earlier, those setting CO2 intensity reduction target of 80% or more by 2030, and low emitters reaching the 80% sector emissions intensity reduction threshold.

    Discussing the geographical and sectoral diversity of the fund’s holdings, Eggerstedt noted the inclusion of companies such as CityCon, Storebrand, Arcelik – a consumer electronics company from Turkey, with carbon neutrality goals – as well as Whitbread, a Hotel operator, which has announced it will transition to 100% renewables energy sources for its hotels.

    Proprietary Tools

    “Schroders’ proprietary tools allow us to identify what the ‘burning issues’ are in the world of sustainability and which will affect asset managers,” the PM says. One such tool, Schroders’ Climate Change dashboard identifies 12 issues that are crucial for achieving the 1.5°C climate warming goal.

     

    She notes that political ambition has improved and that there remains public concern for climate change. Fundamentally, Eggerstedt focuses on the funding gap from “Climate finance”, of which she says that the “5.5°C of climate finance shows that billions of dollars are still needed to meet the pledge to Paris in the right time frame. That’s where we see a lot of opportunities. This is not just about green bonds. Green bonds are a small part of the market. It’s about finding companies that can contribute [to the struggle against climate change],” she explains. “Enablers provide technology solutions,” Eggerstedt says.

    Another important factor for global warming is carbon capture and storage (CCS) capacity, which Schroders’ climate change dashboard suggests is still too underdeveloped, pointing to an underlying 4.9°C temperature increase. Discussing the carbon emissions of heavy industry, Eggerstedt notes that “[Steel and Cement] would certainly benefit from CCS. We are looking at companies that might take part in that technology.”

    Despite the “depressing” 3.4°C temperature increase Schroders identifies the global economy as being on the path towards, Eggerstedt strikes an optimistic tone. There may still be hope.

    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

    Latest Posts

    partner insights

    From meat-based to plant-based

    Cutting meat consumption is by far and away the most important dietary change we can all make to help combat climate change. It will also have a positive knock-on effect for biodiversity.

    Find out more >