PI Partnership – Candriam
For instance, green bonds issued by manufacturers of hybrid vehicles (supporting the UN Sustainable Development Goal 11, such as providing sustainable transport) would include KPIs linked to the reduction of CO₂ that is achieved per vehicle. In the utilities sector, the KPI based on CO₂/kwh is used to measure a project’s alignment with the Paris Agreement on climate.
Pension funds’ challenges For pension funds, the distinctive feature of sustainable bonds is well suited for fulfilling their regulatory obligations about demonstrating the responsible use of their investments, such as the Task Force on Climate-Related Financial Disclosures (TCFD) and pension funds’ own stewardship codes. That said, the research and monitoring efforts required for investing in sustainable bonds has proved to be an unsur- mountable challenge for some pension funds. Key challenges include:
1. Fundamental bottom-up research – In order to maximise the impact of sustainable bonds investing, fundamental research of issuers, thorough due diligence of the projects and instrument selection are crucial.
2. Monitoring and engagement – Tracking of bond proceeds and project impact evaluation depend largely on the issuers’ reporting meeting a certain level of disclosure and transparency. International ESG reporting standards do not yet exist and investors will have to perform this on a case-by-case basis through rigorous engagement.
Candriam’s approach to sustainable bonds Our strategy aims to provide an efficient means for investors to contribute towards the UN Sustainable Development Goals (SDGs), whilst maintaining their fiduciary responsibilities by offering a combination of long-term investment opportunities and sustainable impact. It is underpinned by our four-pillar Use of Proceeds Frame- work that we use for sustainable bond selection: 1. Examine the issuer. For example, in a case of a green bond, the company’s environmental strategy must be aligned with the Paris Climate agreement. 2. Analyse the allocation of the proceeds to eligible projects and KPIs – do they make a positive contribution to SDGs? 3. Management of net proceeds – how transparent is it? 4. Verify the reporting on the bonds’ KPIs and how the project progressed. With more than 25 years of experience in ESG and long-estab- lished fixed income capabilities, Candriam’s sustainable analy- sis of corporate and sovereign bonds has evolved into a robust process which has been well tried and tested across global markets.
Looking at the future Sustainable bonds are not only an exciting, fixed income inno- vation. Their distinctive objective of making a meaningful con- tribution to the process of building a sustainable future – should ensure them a prominent place in the financial markets. By offering a partnership between bond issuers and investors, sustainable bonds help facilitate a move towards a better future for companies, countries and, ultimately, our societies.
This document is provided for information and educational purposes only and may contain Candriam’s opinion and proprietary information. The opinions, analysis and views expressed in this document are provided for information purposes only, it does not constitute an offer to buy or sell financial instruments, nor does it represent an investment recommendation or confirm any kind of transaction. Although Candriam selects carefully the data and sources within this document, er- rors or omissions cannot be excluded a priori. Candriam cannot be held liable for any direct or indirect losses as a result of the use of this document. The intellectual proper- ty rights of Candriam must be respected at all times, contents of this document may not be reproduced without prior written approval. Warning: Past performances of a given financial instrument or index or an investment service, or simulations of past performances, or forecasts of future performances are not reliable indicators of future performances. Gross performances may be impacted by commissions, fees and other expenses. Performances expressed in a currency oth- er than that of the investor’s country of residence are subject to exchange rate fluctuations, with a negative or positive impact on gains. If the present document refers to a specific tax treatment, such information depends on the individual situation of each investor and may change. CANDRIAM. INVESTING FOR TOMORROW.
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June 2022 portfolio institutional roundtable: Sustainable debt
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