Stockholm (NordSIP) – Swiss impact asset manager responsAbility and British asset manager M&G launched the M&G responsAbility Sustainable Solutions Bond Strategy, a fund focusing on sustainable corporate bonds. The new product classified as an Article 9 product under the EU’s Sustainable Finance Disclosures Regulation (SFDR).
The new strategy was developed in response to institutional and wholesale investors’s demand for actively managed sustainable fixed-income strategies. The fund is available in the Nordic region and is registered for sale in all Nordic countries. It is accessible to both institutional and retail investors, according to responsAbility.
“This strategy is testament to M&G’s ability to combine its capabilities to create unique investment solutions that play to our strengths in active fixed income and responsAbility’s market-leading impact credentials. The M&G (Lux) responsAbility Sustainable Solutions Bond Fund has been tailored to meet demand from pension funds, insurance companies and wholesale investors in Europe looking to align active public fixed income portfolios to positive change,” Neal Brooks, Global Head of Product and Distribution at M&G, says.
The Fund will be co-managed by Mario Eisenegger and Ben Lord who are long-standing members of M&G’s €161 billion global fixed income investment division. responsAbility will act as Investment Adviser, providing quality assurance and additional insights across sustainability themes and supporting the thorough analysis of M&G’s industry-leading research teams. responsAbility will also be a voting member of M&G’s independent Impact, SDG & Solutions Committee.
The benchmark for this fund is the Bloomberg Global Corporate Green Social Sustainability Bond Index, which represents a subset of the Bloomberg Global Aggregate Corporate Index. Historically, both indices have shown a relatively high correlation and represent a similar risk-reward profile, the asset managers tell NordSIP.
Investing the SDGs
The strategy employs a set of sustainability Key Performance Indicators (KPIs) to measure the ESG performance of the portfolio. The sustainable objective of the fund is to contribute to a sustainable economy by investing in global bonds that support environmental and/or social goals.
The fund targets a minimum of 80% in Sustainable Investments as defined by the Sustainable Finance Disclosure Regulation (SFDR). All holdings are mapped to one of the 17 Sustainable Development Goals (SDGs) and to one of the six solution provider areas: better health, better work & education,social inclusion, circular economy, environmental solutions, and climate action.
Investments will be mapped to the UN Sustainable Development Goals (SDGs) according to their contributions and bonds in the portfolio will either be “Project financing bonds” or “Solution Provider Businesses”. “Project financing bonds” refer to ESG bonds funding a specific project targeting either environmental (green bonds) or social outcomes (social bonds), or a combination of both (sustainability bonds). “Solution Provider Businesses” are bonds issued by companies that actively address problems linked to environmental or social challenges through the core products and services they offer.
“One of the most effective ways for bond investors to contribute to the Sustainable Development Goals is by directly funding environmental and social projects and providing financing to businesses that make a meaningful, positive contribution to the planet or society through their underlying business models. This fund does exactly that, giving the team a clear mandate to be laser-focused on these urgent priorities when putting our clients’ money to work,” fund manager Mario Eisenegger says.
ESG Labelling and Credit Rating
According to responsAbility, “the fund’s neutral position is 100% investment in labelled sustainable bonds, including green, social, and sustainability bonds.” Through its ability to invest in “Sustainable Solution Provider” businesses, 12.3% of the fund’s portfolio is also invested in securities that are not labelled bonds. These businesses undergo a proprietary research process and are approved by the M&G Impact, SDG & Sustainable Solutions Committee, of which responsAbility is a voting member. However, the fund has no minimum commitment to labelled bonds, but follows a benchmark-aware portfolio construction process and is therefore mindful of off-benchmark positions.
“The global reach and flexibility of this investment grade credit fund are beneficial for portfolio construction as these features enlarge the opportunity set for credit selection, improve diversification, and allow the fund to access sustainable solutions around the globe as they emerge,” Eisenegger adds.
From a credit rating perspective, at least 80% of the fund will be held in global investment grade credit at any one time. The fund is also subject to the internal restriction of 10% in issuers with a sub-investment grade rating. As of the 29th of October, the fund holds c.94% in IG securities, c.1% in HY, and the remainder in cash.
The fund’s most significant underweights are in the autos, utilities, and real estate sectors, while the most significant overweight is in the healthcare sector, with additional off-benchmark positions in government bonds and covered bonds as we look to enhance portfolio quality.
“As pioneers in impact investing and with a solid 20-year track-record in delivering for our clients and societies in emerging markets, we know how crucial it is for investors to make sustainable decisions among the myriad of options available. We’re very pleased to join forces with M&G’s fixed income team for the first time, capitalising on the strength of our climate research capabilities and contributing to the sustainable focus of the portfolio. This is a great opportunity to combine our expertise and deliver to institutional and wholesale clients alike,” Stephanie Bilo, Chief Client & Investment Solutions Officer, responsAbility, concludes.
