Emmons: Yes, all industry participants have a role to play here.
There is a double lens to this. It is not just about companies producing responsible outcomes, it is also about maximising your risk-adjusted
returns. Rhys Petheram, Jupiter Asset Management
Thompson: But are you getting enough push from the people whose money you are managing to do more of that? Forest: It is difficult as a bond investor to engage with all the issuers. We have to be realistic here. Gourlay: And for them to have all their bondholders call up to engage. It must be a nightmare. Loughney: There is pressure. Some of our partner funds have set a target of when we have to get our carbon emissions down. So, there is a dialogue. We are all involved and are all engaged and there is no reason why we should not start that journey. The pressure and the understanding from the larger institu- tions is lower, because they have more political objectives on the governance side. Thompson: There is going to be more of that. It is where the consultants can help.
How measurable are a bond’s sustainable outcomes? Petheram: It is not easy. The reporting from companies is mixed on the green bond side. Only half of issuers produce an impact report and two-thirds a use-of-proceeds report. It is improving. But I worry about the efficacy around some of the numbers coming out. It is particularly challenging in green bonds, which is a market that is supposed to make it easier yet it seems harder in some respects. There is a pathway for making it better. Data provider groups are starting to build out data on green bonds. But if an issuer issues a green bond they report against a pool of green assets, so you do not know what the impact of that one particular bond is. For me, the most useful component of an impact report is real world examples. Emmons: It goes back to the importance of evolving the report- ing framework. At COP26 initiatives were put forward by ISS, IFRS [International Financing Reporting Standards] and TCFD [Task Force on Climate-related Financial Disclosures]. We are heading in the right direction, but it needs greater industry standardisation which would make it easier to con- clude that what we are being presented with is right. There are many ways investors are evaluating the efficacy of their strategies. They are comparing ESG scores to representa- tive market indices, which is not perfect but is a good starting point. They are assessing manager’s ability to avoid ESG land- mines such as, say, Volkswagen. By understanding the govern- ance framework and a company’s policies you are less likely to be susceptible to that headline risk. They can assess the extent to which a sustainable-linked bond deviates from its KPIs. There are ways to evaluate this, but it is not perfect. The stand- ardisation of the available data is sub-optimal in some cases. Bikos: It has to do with what you are trying to measure. When it comes to carbon, there are frameworks we can apply but how do you measure the sustainable development goals? It is hard to do it accurately. Then you force yourself to go down the route of making assumptions on top of assumptions to get to something “sensible”. We are not there yet, especially when it comes to the sustainable development goals. We have made significant progress on the carbon side with scopes 1, 2, 3 and soon scope 4, which will be used to describe avoided emissions. The point is, when it comes to sustainable bonds, each of us around the table will have a different defini- tion of what a sustainable bond portfolio is. This is the prob- lem. We do not have a common definition, so we measure things in a way that fits what each of us is doing. Forest: Why is that a problem? I have disagreed with official country ratings. We did not invest in Russia because our anal-
June 2022 portfolio institutional roundtable: Sustainable debt 17
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