ESG & Sustainable Investing

What’s behind the demands for unions globally? When are higher wages a threat to the bottom line? And which companies are best placed to manage the risk? In his back-to-basics blog on organized labor, Sudhir Roc-Sennett answers these critical questions for investors.

2022 was a stormy year for bonds. As 2023 gets under way, our Fixed Income Boutique heads predict whether bonds are set for a smooth touchdown or a bumpy landing amid the continuing headwinds in the global economy.

Biodiversity loss often takes a backseat to climate change in global headlines but ignoring the preservation of natural ecosystems poses a threat to water, land, marine life, health, and can increase poverty. There is an urgent need for change. The upcoming COP 15 will address biodiversity solutions that will benefit companies, investors, and society.

With Egypt’s Sharm el-Sheikh being the venue of this year’s United Nations Climate Change Conference (COP), it’s worth remembering that developing economies bear most of the negative effects of emissions mainly produced in industrialized nations. Therefore, the onus is on western companies to go “net zero carbon”, but how to measure their progress? One common yardstick for investors is the carbon footprint method – or the more encompassing “potential avoided emissions” method propagated by Vontobel’s impact investing team.

Asset owners are increasingly demanding net zero plans from their investment managers, who need to determine how to track and reduce portfolio emissions. Issues include: rebalancing vs rate of reduction, whether it’s too early for Scope 3, and ensuring engagements go beyond the more receptive European and US markets.

High inflation creates the illusion of falling carbon intensity, a common measure used to track greenhouse gas emissions from portfolios. It is critical for investors who are targeting Paris Aligned reductions to adjust for this issue. By using alternatives to revenue-backed carbon intensity tracking metrics, we can help maintain data integrity and save years of progress.

How much do listed companies contribute to emissions? We estimate they account for about 16.9 billion tons of greenhouse gases compared to a global total of 46.3 billion tons annually. These are needle-moving volumes. Investors can make a difference by working with management teams to encourage abatement plans.

The circular economy, popularized by expressions such as “zero waste”, “right to repair”, or “from farm to fork”, is rooted in the knowledge that resources are finite. Companies that manage to reduce their consumption of raw materials are likely to increase their profits and market share, which will ultimately benefit investors. Past examples of corporate successes based on the circular economy include the Italian Vespa scooter.

Here we lift the lid on how typical ESG scoring models work in fixed income, with the help of some real-world examples that will help explain why some companies score well and others poorly. Some of the results will surprise you.

Collateralised Loan Obligations, or CLOs, are bond instruments issued to fund a specific pool of loans, typically senior secured or ‘leveraged’ loans, to companies.

Last week Oodle Financial Services successfully priced its fifth UK Auto ABS transaction, Dowson 2022-1.

Russia’s invasion of Ukraine has triggered fresh debate about ESG considerations in fixed income, particularly when it comes to emerging markets assets.