Investing in quality credit for net zero

An eventful start to 2023 saw sticky inflation and a banking crisis on the macro front, and further government action in climate policy. We review the landscape for corporate bond investors in the net-zero transition during an action-packed first quarter.

Key points include:

• Macro developments saw markets weather a banking crisis and tightening financial conditions. We expect a normalisation of conditions as from here as policy rates approach cyclical peaks
• Competition to decarbonise mounted as the EU unveiled its Green Deal Industrial Plan to rival the US Inflation Reduction Act. Together with other climate-friendly measures, such policy action should drive increased global spending and innovation towards a low-carbon economy
• The long-term shift to net-zero emissions among businesses offers attractive alpha opportunities for savvy credit investors able to navigate the new policy and market landscape. Investing in a decarbonisation strategy also helps minimise transition risk as the market reprices for net zero
• Our high-conviction TargetNetZero corporate bond strategy typically moves down the capital structure in preferred investment-grade issuers or invests directly in BB issuers in order to enhance potential returns
• The portfolio is biased towards so-called ice cubes, or companies that are taking concrete and verifiable steps towards the net-zero transition, and whose progress is aligned with a Paris Agreement trajectory. We use our implied temperature rise (ITR) methodology, a robust and forward-looking tool, to discern and select companies that are best-aligned with the transition  

Read our full review of Q1 using the download button provided.

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