Fixed income ESG’s long-term payoff

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29/06/2018

An environmental social and governance lens on fixed income investing not only benefits risk management but can also generate good long-term returns, Altius Asset Management chief investment officer Bill Bovingdon says.

“Our fixed income research shows that it doesn’t cost you anything to target ESG investments and, in fact, it may give you an incremental improvement in returns,” Bovingdon explains. “We find this is something people are pleasantly surprised to hear. They tend to think of equity investments as the only way into responsible [ESG] investing. But ESG has a good synergy with bonds because it’s a defensive asset and has a layer of risk management that also doesn’t cost you in terms of returns.

Bovingdon says Altius, which is the fixed interest investment arm of financial services mutual Australian Unity, can produce good returns while also hitting its wider social objectives through its ESG strategy.

To this end, the manager set up the Sustainable Bond Fund, which invests in companies that meet its investment return criteria but also apply a moral or ethically responsibly approach to business.

The Sustainable Bond Fund, which has run for about four years and includes $140 million worth of assets, is focused on green and sustainability sectors, especially where proceeds are set aside for green projects.

Specifically, it invests in Australian bonds, including government bonds, semi-government bonds, supranational bonds, corporate bonds and mortgages, and has achieved 3 per cent total return since inception.

“With the green bonds available, you can actually specifically provide funds that are going to an impact investment of some kind, be it renewable energy or other sustainable investments such as green buildings,” Bovingdon says. “With these investments, there’s a closer connection that meets both the objectives of giving you income and the defensive character of your portfolio, but also meets broader objectives that investors desire in ESG.”

Altius also scrutinises bonds from corporations or governments that engage in unsustainable activities. Bovingdon explains that there’s a great deal of risk that comes from investing in such businesses and often without the level of return that can offset that risk. While short-term returns might not be affected, long-term returns will be, he says.

Bill Bovingdon will speak at the Investment Magazine Fixed Income and Credit Forum, RACV Healesville, Victoria, July 24-25. For more information, visit the website.

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