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Fact or fiction: SI only works with equities

Fact or fiction: SI only works with equities

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Hundreds of investors are convinced that sustainability investing offers a better way of buying equities. But few really apply it to fixed income portfolios – and that is a shame, since SI works just as well with bonds and can be essential for risk management in certain markets.

  • Guido Moret
    Guido
    Moret
    Active Ownership Specialist
  • Masja Zandbergen
    Masja
    Zandbergen
    Head of ESG integration

Speed read

  • ESG criteria is used to analyze government and corporate bonds
  • Country and company surveys can assess downside risks
  • Green bonds are a popular new way of investing sustainably

The myth that SI only works with equities exists because government bond prices are more sensitive to macroeconomic issues such as interest rates and GDP growth than to company-level environmental, social and governance (ESG) factors. And it is hard for some investors to see how ESG issues would have any bearing on debt that needs to be repaid anyway.

It basically boils down to trying to reduce risk, and a principle in credit markets that Robeco has long followed – it is more important to avoid the losers than necessarily always pick the winners in a portfolio. Avoiding the losers means making a careful analysis of the inherent risk in any bond: the ability of the issuer to pay the money back, or alternatively, default. This is where ESG analysis can help.

For government bonds, countries issuing them can be assessed for their risks using a wide range of ESG criteria. RobecoSAM’s Country Sustainability Ranking (CSR) contains masses of data gleaned about a country, puts it into a score, and updates the information twice a year. The score is based on 17 factors which receive a weight of 15% for environmental, 25% for social and 60% for governance. This greatly assists in country allocation; for example, the October 2017 survey was much more positive on Ireland and less so on Turkey, allowing the bonds teams to risk-adjust their portfolios accordingly.1

サステナビリティ投資に関する9つの新たな考え方

今すぐダウンロード(英文)

Assessing credits’ credentials

RobecoSAM also compiles the Company Sustainability Assessment (CSA), a detailed questionnaire about every aspect of a company’s ESG performance, from carbon emissions to worker relations and board composition. This is used for both equities and corporate bonds, since the underlying data applies to the company rather than purely to the security.2

As with equities, all the information gleaned must be financially material; it must have a tangible impact on factors such as profit margins, revenues or costs. This has a direct impact on the company’s ability to repay (or refinance) a bond. Whereas analysis for equities usually seeks an upside, the focus for fixed income remains on trying to deflect any downside.

The ESG information garnered is then integrated into a wider analysis of the merits of whether a bond is worth buying. At Robeco, this is done by creating a five-way ‘F-score’, using a company’s financial profile, business position, corporate strategy and structure on top of the sustainability score, as seen in the diagram below.

Impact on one-third of cases

And it works… Robeco’s experience found that for credit investments in 2017, ESG information had a negative impact on the total fundamental analysis in 30% of cases, and a positive impact on 3% of names in the investing universe. This directly influences investment decisions by the fixed income portfolio managers and has been instrumental in the buying and selling of bonds – just like in equities.

The relative importance of each ESG variable differs though between industries. Environmental factors and the need to reduce emissions is more important for the oil industry than for retailing, where worker relations is a bigger issue, or for banking, where governance has a higher priority in managing risk factors. Food companies face rising pressure to make healthier products; recent evidence presented to the UK Parliament complained that “sugar is the new tobacco” and should be taxed as such. This presents a clear risk to future profitability and a license for food and beverage makers to operate.3

サステナビリティ投資の真実:“事実”か“虚構”か

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Green bonds are becoming popular

One area in which sustainability investing has developed an exclusive inroad into fixed income markets is green bonds. These are credits issued to fund environmental projects ranging from wind farms to water purification facilities, mostly in emerging markets.4

They work just like normal government or corporate bonds, and most are investment grade. They are sometimes securitized, where the future revenue streams from the project (such as renewable energy sold to national power networks) act as a form of security for the issue.

The market has developed strongly since the first green bonds were issued by the European Investment Bank and World Bank in 2007. Now they’re popular with mainstream investors, including Robeco, which includes them in selected fixed income funds. According to research by Bank of America Merrill Lynch, which launched a Green Bond Index in 2014, the total outstanding amount of green bonds exceeded USD 200 billion in 2017.5

1 For more information about how the CSR is compiled, see
2 For more information about the CSA, see
3 Dr. Aseem Malhotra, ‘Sugar is the new tobacco, so let’s treat it that way’, 2016
4 For more information about green bonds, go here
5 Bank of America Merrill Lynch research, November 2014

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重要事項

当資料は情報提供を目的として、Robeco Institutional Asset Management B.V.が作成した英文資料、もしくはその英文資料をロベコ・ジャパン株式会社が翻訳したものです。資料中の個別の金融商品の売買の勧誘や推奨等を目的とするものではありません。記載された情報は十分信頼できるものであると考えておりますが、その正確性、完全性を保証するものではありません。意見や見通しはあくまで作成日における弊社の判断に基づくものであり、今後予告なしに変更されることがあります。運用状況、市場動向、意見等は、過去の一時点あるいは過去の一定期間についてのものであり、過去の実績は将来の運用成果を保証または示唆するものではありません。また、記載された投資方針・戦略等は全ての投資家の皆様に適合するとは限りません。当資料は法律、税務、会計面での助言の提供を意図するものではありません。

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加入協会: 一般社団法人 日本投資顧問業協会