Reedie: The public-private angle is important. If you are an allo- cator of capital, you can do a lot of good by investing across both channels.


The risk in being public only is that if you make life unpleasant for a company that hauls stuff out of the ground, they will just offload their coal assets to someone who does not care. You have lost the ability to influence that asset. Return generated for the risk taken is something we already do. The return gen- erated for the impact the investment makes, is a different ques- tion and much harder to quantify. We are not there yet. Thomas: There is a massive demand to do good. It is huge. That is a major point of focus within Border to Coast. Reedie: Do you want to do good or do harm? It is a binary decision. Thomas: Yes, it is black and white, but implementing that is our job. To implement it mindfully, sensitively and accurately is what we are trying to do. It is not as straightforward a proposi- tion as a binary outcome. Lee: My experience of binary investors is that we had a group who ask us to put green funds in their portfolio. So, we picked some green labelled funds and discovered that their portfolio was dirtier than before. So, they were already pretty green with- out knowing it. That is the problem with trusting a label. When people were worried about inflation, funds with infla- tion in their name went up in value because everyone wanted to buy them regardless of whether or not it guards against inflation. At the other end of the spectrum, when you mention green funds to clients their response is: “Does it enhance my return?” So, you have a binary outcome where people don’t care as long as it has a green label, while at the other end of the spectrum there are those who are sceptical about any form of green dis- cussion. Actually, some green bonds are long dated. One of the longest dated UK green gilts is 30 years, which is great for long-term investors like pension schemes.


The devil is in the detail and green investing is evolving. It is our job to educate investors on what is a complex topic. In the context of understanding green, an investor fundamentally has to understand their risk-return profile and liquidity. Green is one equation to an overall problem. Reedie: It is spectacularly resource intensive to do it properly. Everyone is taking it as what should come with an allocation to fixed income now.


When you are under regulatory pressure, of course, you want the cheapest way to satisfy the requirement. At the moment, that is buying a bunch of expensive green bonds.


This does not sound ideal for a just transition. Freedman: There will be a social taxonomy next in Europe, but


20 April 2022 portfolio institutional roundtable: Fixed Income


There is a supply/demand imbalance in green bonds. It makes us nervous because we


have seen this movie before. Colin Reedie, Legal & General Investment Management


it could be delayed by a few years. There are different regions in Europe with different social constructs and priorities. The environmental taxonomy, which was supposed to be science based, has gone political, with nuclear and gas around the fringes. There is a long way to go in determining which social metrics and key performance indicators are appropriate and how to measure them, let alone bringing many countries into a taxon- omy, which tends to be what the market looks at to develop a benchmark. Nash: There is a massive demand for green bonds, which seems to be unsated. Then there are emerging markets, which are going to have a difficult transition so, need these funds. Not enough is being done to meet them in the middle. A lot of fund managers say emerging markets are too risky, but you can get fund structures where financial institutions or gov-


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