Rupert Cadbury, Fixed Income Portfolio Strategist outlines the key features and benefits of the Sustainable Climate Bond Funds
Imagine if you could improve your bond portfolio’s carbon profile and reduce climate risk, while keeping risk and return characteristics broadly in place.
This is the rationale behind the State Street Sustainable Climate Bond Funds, which adopt a systematic mitigation and adaptation approach that targets Paris-aligned reductions in carbon emissions, fossil fuel and brown revenues exposure, and reallocates capital towards companies benefiting from low-carbon technologies. The Funds also increase exposure to green bonds, adapting companies and bond issuers investing in the solutions needed to achieve net zero by 2050.
The Funds aim to achieve the following objectives:
1. Start with the Right Universe
Clients can select any standard investment grade or high-yield credit benchmark or an aggregate benchmark which include corporate bonds. We first incorporate a set of screens that are aligned with our climate and ESG objectives. We then utilise three sets of exclusions based on product involvement and prescriptive regulatory screens.
2. Source the Best Data
We source the highest-quality climate and ESG data from leading data providers - Trucost, Climate Bonds Initiative, ISS ESG, MSCI, Sustainalytics and our internal R-FactorTM.
3. Design for Optimal Outcomes
We use a mitigation and adaptation framework to rebalance the portfolio towards companies that will achieve our stated objectives:
We then balance the portfolio to target the highest expected risk-adjusted return, given the desired constraints.
4. Maximise Value
The portfolio is implemented using an indexed approach to deliver a consistent, cost-efficient and diversified bond exposure.
Further information on our Sustainable Climate Bond Funds can be found here.
The returns on a portfolio of securities which exclude companies that do not meet the portfolio's specified ESG criteria may trail the returns on a portfolio of securities which include such companies. A portfolio's ESG criteria may result in the portfolio investing in industry sectors or securities which underperform the market as a whole.
Responsible-Factor (R Factor) scoring is designed by State Street to reflect certain ESG characteristics and does not represent investment performance. Results generated out of the scoring model is based on sustainability and corporate governance dimensions of a scored entity.
All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. Past performance is not a reliable indicator of future performance.
The information contained in this communication is not a research recommendation or ‘investment research’ and is classified as a ‘Marketing Communication’ in accordance with the Markets in Financial Instruments Directive (2014/65/EU) or applicable Swiss regulation. This means that this marketing communication (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research (b) is not subject to any prohibition on dealing ahead of the dissemination of investment research.