The sustainability transition to a Circular, Lean, Inclusive and Clean (CLIC™) economy

Sustainability is at the forefront of our investment decisions whether we look at a company or a country. Early in this journey, we recognised the importance of integrating sustainability into our corporate bond portfolios and more recently in sovereign and money market strategies. At the core of our strategies sits the belief that risk mitigation and, therefore, capital preservation¹ are crucial to adding value. Sustainability supports this belief by identifying the companies and countries best suited to the demands of a low carbon, low temperature, resource-scarce global economy and, therefore, adds resilience to our portfolios, which we believe is key particularly in these volatile markets.
 
The supply of green bonds has increased significantly this year with many new issuers and new instruments, including green subordinated debt from financials, green hybrid bonds and even green high yield bonds. This is a significant improvement as the supply of green assets is becoming available across all different types of debt securities and across the rating spectrum. We have also seen more sustainability-linked bonds where the coupon steps up if a specific sustainability target is not met. We believe this area will grow significantly over the next few years as it allows less capital-intensive companies to issue “green” bonds where investors are supportive of the company’s strategy rather than a specific project.
 
In our view, the COVID-19 crisis has strengthened the case for an active and sustainable management of portfolios in a world where uncertainties remain. Therefore, our aim is to mitigate risks by identifying high quality companies (i) with a sustainable business profile and (ii) that are transitioning towards a better-aligned business model. In addition, we focus on finding innovative alpha sources by selecting issuers that benefit from the transition towards a CLIC™ economy.
 
When it comes to sovereigns, our investment philosophy is grounded on the same principle: a focus on countries’ sustainability. With a growing issuance of green bonds from governments, we expect similar developments to those for companies. Moving forward, we expect sustainability to be a driving force for investments, as we see an intensification of the shift in the economy to cope with this new reality.

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