Impact Investing Conference

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How Bond Investors Can Also Jump on the ESG Train The Wall Street JournalHow Bond Investors Can Also Jump on the ESG Train The Wall Street JournalHow Bond Investors Can Also Jump on the ESG Train The Wall Street Journal

Impact Investing Forum 2024

London. April 24-25, 2023.

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Alexandra Wilson-Elizondo, MacKay Shields, suggests that investors looking at ESG corporate bonds or sovereign bonds should focus on whether the country or company is moving towards adopting more ESG friendly policies. Pictured: The Cerro Dominador solar power station in Chile’s solar heliostats. Photo: elvis gonzalez/epa/Shutterstock By Gerrard Cowan Updated Sept. 16, 2021 7:01 pm ET Environmental, social and governance issues have become major themes in stock investing by exchange-traded funds. Other funds are now offering ESG-friendly approaches to bonds. ETFs that focus on ESG-friendly bonds have seen a surge in investor interest this year. ETFs that focus on ESG bonds saw inflows of $2.1 billion from the beginning of the year to Aug. 31, which is about the same as the total for 2020, according to Dave Nadig, chief investor officer and director of research at ETF Trends. ESG-themed funds invest either in corporate or sovereign bonds. iShares ESG Aware USD Corporate bond SUSC –0.25% (SUSC) is an $809 million fund. It was down 0.38% through August 31. Vanguard ESG US Corporate Bond fund, (VCEB), has approximately $217 million in assets and was down 0.76%. Vanguard spokesperson says that the provider anticipates increasing interest in ESG products over the next years as investors seek to avoid certain ESG risk and/or allocate capital for companies managing their ESG opportunities and risks effectively. Corporate bonds can be screened using ESG criteria similar to equities. However, it is much more difficult to screen sovereign bonds for positive ESG qualities, Mr. Nadig states. Because nations are complex, they can gain ESG points in many areas and still make significant wealth from petroleum. Alexandra Wilson-Elizondo is deputy head of global credit at MacKay Shields. She suggests that investors not focus on a static view of a moment in time but instead on whether the country or company is moving towards adopting more ESG-friendly policy. MacKay Shields and IndexIQ jointly launched IQ MacKay ESG Core Plus Bond in June. This fund, which is actively managed, incorporates ESG factors into its selection process. Ms. Wilson Elizondo explains that her fund evaluates whether to invest in government bonds from a country. The managers then consider the country’s general standards and then look at how it generates wealth. She says that a country’s oil consumption or distribution is not necessarily a red flag. However, it should be making an effort to transition to more ESG-friendly policies. She says that purchasing bonds from the country can help finance these transitions. She says, “We are very focused on changing our landscape going forward.” “We don’t want to be continually penalizing corporate issuers and sovereigns.” ESG investors tend not to pay much attention to the environmental component of ESG. However, the Covid-19 pandemic has brought attention to the governance and social pillars. This is a major factor driving interest in ESG investments, such as bonds, according to Jordan Farris (head of ETF product at Nuveen), which operates NUBD-0.11% Nuveen ESG USA Aggregate Bond(NUBD), a $264.6 Million fund that was down about 1 percent this year through August and Nuveen ESG Corporate Bond (NUHY), $101.7 Million fund that was up 2.1%. He says that millions of workers are now working remotely and people have a greater appreciation for companies’ human capital development strategies. Many ESG-focused bond funds aren’t seeing stellar returns this year. It has been a similar story with bonds overall, as the Bloomberg U.S. The Aggregate Bond Index or the Agg–a benchmark for the performance of the U.S. bond markets–was down 0.69% through August 31. ESG-themed bond fund investors “shouldn’t expect vastly different results than conventional bonds,” states William Sokol (product manager for ETFs at VanEck), which offers VanEck Vectors Green Bond, a $99m ETF that was down 0.5% through Aug. GRNB provides exposure to green bonds, which are debt instruments that have been issued for specific environmental purposes. Mr. Sokol believes that ESG-focused bonds could outperform if pricing starts to reflect environmental and other risks. However, such funds should be considered as a way to reduce ESG risks in a portfolio. Mr. Sokol says that while you are likely to get similar returns, the ESG impact is positive. ESG funds have reached new heights thanks to investors in 2020. Federal agencies are closely watching. WSJ explains why regulators are reviewing ethical and sustainable investment funds. Photo Illustration by Alex Kuzoian Mr. Cowan lives in Northern Ireland. You can reach him at Corrections & Amplitudes
The Bloomberg U.S. In an earlier version of this article, the Bloomberg U.S. Aggregate Index was incorrectly called the Bloomberg Barclays US AGgregate Bond index. (Corriged on Sept. 16. Copyright (C.2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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ESG Investing Conference