PI Partnership – Newton Investment Management


Labelled-bond issuance We expect to see continued growth in ESG-labelled bond issu- ance after 2021 set new records, albeit the $1.6trn (£1.2trn) (per ICE Green, Social & Sustainable Bond Index) is still a small amount in the context of the overall size of the global bond market today.


As central banks start to tighten monetary policy, and in some cases talk of reversing quantitative easing, the reduced amount of fiscal stimulus means that some of the emergency-induced bond supply is unlikely to reoccur. This issuance has acted as an extra catalyst for growth in labelled bonds, often driven by gov- ernments and agencies. That said, we still expect governments to be the largest issuers of labelled bonds globally. We also see a continued broadening out of sectors as issuance is still quite concentrated in the finance, utility and real-estate sectors. There is a risk that fragmentation and tiering begin to appear in some labelled bonds, such as new-format green bonds, for example, with environmental targets within some sustainabili- ty-linked bonds starting to reference science-based targets. Our view is that the market needs a clear framework with consist- ent standards across regions of the world, which would help investors to compare and contrast issuers and bonds and better hold them to account.


Standout flaw


Whereas some green and social-bond issuers are to be com- mended for having a genuine focus on improving environ- mental and social outcomes, there exists a standout flaw. There is no penalty for not delivering on intentions set out within green and social-bond issues. We think that if these bond structures contained some of the same covenant tests as the newer sustainability-linked bonds, the risk of greenwash- ing would be lower. We have often heard a representative of company manage- ment, for example, comment on how the main driver for issu- ing a labelled bond is to attain a lower cost of funding owing to the ‘halo effect’ of being considered a responsible corporate citizen. Having been engaging with bond issuers for some time now, we are still often surprised by peers’ lack of questioning of management teams around ESG topics. However, we do sense that issuers are becoming more cognisant of the higher expec- tations placed on them and the need to demonstrate the efficacy of their ESG strategy. We believe investors will also follow up with increasingly informed testing of management teams and governments on sustainability issues.


Important information This is a financial promotion. These opinions should not be construed as investment or other advice and are subject to change. This material is for information purposes only. This material is for professional investors only. Any reference to a specific security, country or sector should not be construed as a recommenda- tion to buy or sell investments in those securities, countries or sectors. Newton manages a variety of investment strategies. Whether and how ESG considerations are assessed or integrated into Newton’s strategies depends on the asset classes and/or the particular strategy involved, as well as the research and investment approach of each Newton firm. ESG may not be considered for each individual investment and, where ESG is considered, other attributes of an investment may outweigh ESG consider- ations when making investment decisions.


Issued by Newton Investment Management Limited, The Bank of New York Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Registered in England No. 01371973. Newton Investment Management is authorised and regulated by the Financial Conduct Authority, 12 Endeavour Square, London, E20 1JN. Newton Investment Management Limited is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940. Newton Investment Management Limited’s investment business is described in Form ADV, Part 1 and 2, which can be obtained from the SEC.gov website or obtained upon request. ‘Newton Investment Management Group’ is used to collectively describe a group of affiliated companies that provide investment advisory services under the brand name ‘Newton’ or ‘Newton Investment Manage- ment’. Investment advisory services are provided in the United Kingdom by Newton Investment Management Ltd (NIM) and in the United States by Newton Investment Man- agement North America LLC (NIMNA). Both firms are indirect subsidiaries of The Bank of New York Mellon Corporation (‘BNY Mellon’).


April 2022 portfolio institutional roundtable: Fixed Income


29


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36