Our Sustainable Climate Bond Strategy (the Strategy) seeks to align with the goals of the Paris Agreement, and allows investors to mitigate current and future carbon emissions, and reallocate capital towards green bonds and companies adapting to climate-related risks.
Green Bonds and Proceeds x2.5
Bonds which qualify as green or climate aligned according to CBI standards and taxonomy.
Fossil Fuels -95%
GHG emissions resulting from a company’s fossil fuel reserves. 1
Carbon Intensity -70%
Direct and indirect GHG emissions. 1
Adaptation Score on Climate change preparedness
Brown Revenues -95%
Revenues from extractives activities. 1
Lose the Carbon, Fund the Transition
The Strategy employs a stratified sampling approach to achieve the most efficient trade-off between climate targets and tracking error, while achieving long-term returns broadly in line with the underlying benchmark.
The Strategy is characterised by the following:
Mitigation and Adaptation
Reallocates capital away from companies with high carbon emissions, fossil fuels and brown revenues
To help build a more climate-resilient portfolio, the Strategy also increases exposure to companies working proactively to minimise their exposure to actual or expected physical, economic and regulatory impacts of climate change.
Fund the Transition
Increases exposure to green bonds, climate-aligned issuers, adapting companies and bond issuers investing in the solutions needed to achieve net zero by 2050.
Aligns with the Paris Agreement
The Strategy seeks to align with the ambitious goals of the Paris Agreement — including limiting climate change to the 2° Celsius warming scenario relative to pre-industrial levels.2
Excludes companies involved in activities relating to controversial weapons, R-Factor™ Laggards, severe ESG controversies, tobacco, violations of the UN Global Compact and a prescriptive regulatory screen.
Meets Client Objectives Flexibly
The Strategy framework is flexible and allows clients to select a credit or aggregate benchmark which includes corporate bonds.
Targeted Climate Objectives
Other Climate Bond Solutions
Our Low-Carbon Corporate Bond framework offers bond investors a way to achieve a lower carbon footprint, while maintaining similar returns to the performance of their selected fixed income benchmark. Our customised portfolios can minimise tracking error for a targeted level of carbon reduction or maximise carbon reduction for a targeted level of tracking error.
We can help clients achieve significant improvements in carbon intensity with minimal impact to credit quality or interest-rate risk relative to corporate bond benchmarks.
How to Access
Both the Sustainable Climate Corporate Bond Strategy and Low-Carbon Corporate Bond framework are available via a separately managed account only.
1 The above targets are as of 1 June 2020 and are subject to change as both the science and the data behind climate investing evolves. Targets are relative to the chosen underlying corporate bond index. The information contained above is for illustrative purposes only. Targets are relative to the chosen underlying corporate bond index. The above targets are estimates based on certain assumptions and analysis made by State Street Global Advisors (SSGA). There is no guarantee that the estimates will be achieved. The framework applies "zeros“ for carbon intensity, brown revenue and fossil fuel reserves metrics associated for bonds identified as green bonds and climate aligned securities. The information contained above is for illustrative purposes only. Green Bonds & Climate Aligned Issuers: SSGA seeks to identify qualifying securities according to the Climate Bonds Initiative Taxonomy (CBI). For historical back-testing, Green bonds are identified using Thomson Reuters Data and switched to CBI data when available. The Green Bond market aims to enable and develop the key role that debt market can play in funding projects that contribute to environmental sustainability. Even though some data providers propose a Green Bond label, there still lacks a common global market consensus standard regarding the definition of Green bond. The International Capital Market Association proposed a set of guidelines with four components: 1.Use of proceeds, 2.Process for project evaluation and Selection, 3.Management of Proceeds 4.Reporting. On 17th June 2020, SSGA partnered with CBI and joined CBI’s partners network. The use of a 3rd party to assess the suitability of the Green-labelled bond label give us more confident in the use of proceeds. Due to the fairly concentrated nature of the Green bond market, the Climate strategy includes also bonds that are labelled as “Climate-Aligned” Bonds. Climate-aligned bonds are bonds which CBI identify as financing assets and activities for climate change solutions. The climate-aligned bond universe is composed of: a) Unlabelled bonds from issuers that derive >95% of revenues from “green” business lines. Such issuers are defined as “fully-aligned” issuers b) unlabelled bonds from issuers that derive 75 -95% of revenues from “green” business lines. Such issuers are defined as “strongly-aligned” issuers c) labelled green bonds issued by green bond issuers. For more information on the CBI Taxonomy please visit: https://www.climatebonds.net/standard/taxonomy. The Sustainable Climate Corporate Bond Strategy identifies qualifying green bonds and climate aligned securities as financing projects needed to deliver a low carbon economy and gives GHG emissions screening criteria consistent with the 2-degree global warming target set by the COP 21 Paris Agreement. As such they are excluded all together from any filtering (with exception to the SSGA UNGC, Controversial Weapons and Swedish Ethical Council Screen which all securities must comply with) and are treated as a “stand-alone” allocation. Additionally, and following consultation with S&P Trucost, SSGA replaces green bonds and climate aligned securities with "zeros“ for carbon intensity, brown revenue and fossil fuel reserves metrics and this may cause an underestimate in the final weighted average volumes.
ISS ESG “Adaptation Score”: The score uses thePosition on Climate Change and Disclosure of Climate Change Risks and Mitigation Strategy metrics. The Position on Climate Change indicator evaluates the company’s position on climate change. The company shall have a clear position, which refers to the scientific evidence of climate change, the company's responsibility in this context and its commitment to contribute to the reduction of greenhouse gas emissions. The Disclosure of Climate Change Risks and Mitigation Strategy indicator evaluates whether the company assesses most important industry risks with regard to climate change, and whether it has respective adaptation and mitigation strategies in place. The company shall disclose and quantify all relevant industry-specific risks (as defined by the analyst in charge of the industry) with regard to climate change (e.g. physical, regulatory, market, cost or legal risks), and provide comprehensive information on its respective adaptation and mitigation strategies. Each company receive a rating between (1 – 4) for each of the indicator. If either rating Position on Climate or Greenhouse gas emission reduction target or action plan was missing, the company would not be rated for the adaptation score. 1.5 is the ‘Adaptation Score’ below which a company will be ineligible for inclusion.
Investing involves risk including the risk of loss of principal. Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Investing in foreign domiciled securities may involve risk of capital loss from unfavourable fluctuation in currency values, withholding
taxes, from differences in generally accepted accounting principles or from economic or political instability in other nations.
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.
The trademarks and service marks referenced herein are the property of their respective owners. Third party data providers make no warranties or representations of any kind relating to the accuracy, completeness or timeliness of the data and have no liability for damages of any kind relating to the use of such data.
This information is for informational purposes only, not to be construed as investment advice or a recommendation or offer to buy or sell any security. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views expressed herein are those of the author(s), are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. There are no guarantees regarding the achievement of investment objectives, target returns, portfolio construction, allocations or measurements such as alpha, tracking error, stock weightings and other information ratios. The views and strategies described may not be suitable for all investors. SSGA does not provide tax or legal advice. Prospective investors should consult with a tax or legal advisor before making any investment decision. Investing entails risks and there can be no assurance that SSGA will achieve profits or avoid incurring losses.
Performance quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted.