IN PARTNERSHIP WITH
For more information visit: www.incisiveworks.com
This digital experience is an Incisive Works product © 2024 Incisive Business Media (IP) Limited
n a marketplace awash with choice regarding sustainability and social options, it can be challenging to identify strategies that can demonstrate they are
I
scroll
SOCIAL BONDS
Columbia Threadneedle Social Bonds Snapshot
Going global for more impact
Impact investing: Where are we now?
This digital experience is an Incisive Works product © 2021 Incisive Business Media (IP) Limited
Disclaimer Past performance is not a guarantee or a reliable indicator of future results.The Fund will be actively managed in reference to the Bloomberg Barclays MSCI Global Green Bond Index as further outlined in the Prospectus and Key Investor Information Document. Performance and fees Past performance is not a guarantee or a reliable indicator of future results. Performance figures are presented net of management fees commissions, other expenses, and the deduction of actual investment advisory fees; but do not reflect the deduction of custodial fees. The "net of fees" performance figures above also reflect the reinvestment of earnings. All periods longer than one year are annualized. Separate account clients may elect to include PIMCO sector funds in their portfolio; sector funds may be subject to additional terms and fees. Charts Performance results for certain charts and graphs may be limited by data ranges specified on those charts and graphs; different time periods may produce different results. ESG Socially responsible investing is qualitative and subjective by nature, and there is no guarantee that the criteria utilized, or judgment exercised, by PIMCO will reflect the beliefs or values of any one particular investor. Information regarding responsible practices is obtained through voluntary or third-party reporting, which may not be accurate or complete, and PIMCO is dependent on such information to evaluate a company’s commitment to, or implementation of, responsible practices. Socially responsible norms differ by region. There is no assurance that the socially responsible investing strategy and techniques employed will be successful. Past performance is not a guarantee or reliable indicator of future results. For professional use only The services and products described in this communication are only available to professional clients as defined in the Financial Conduct Authority's Handbook. This communication is not a public offer and individual investors should not rely on this document. Opinion and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness.The services and products described in this communication are only available to professional clients as defined in the MiFiD II Directive 2014/65/EU Annex II Handbook and its implementation of local rules. This communication is not a public offer and individual investors should not rely on this document. Opinion and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. PIMCO Europe Ltd (Company No. 2604517) is authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. The services provided by PIMCO Europe Ltd are not available to retail investors, who should not rely on this communication but contact their financial adviser. PIMCO Europe GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Europe GmbH Italian Branch (Company No. 10005170963), PIMCO Europe GmbH Spanish Branch (N.I.F. W2765338E) and PIMCO Europe GmbH Irish Branch (Company No. 909462) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 15 of the German Securities Institutions Act (WpIG). The Italian Branch, Irish Branch and Spanish Branch are additionally supervised by: (1) Italian Branch: the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act; (2) Irish Branch: the Central Bank of Ireland in accordance with Regulation 43 of the European Union (Markets in Financial Instruments) Regulations 2017, as amended; and (3) Spanish Branch: the Comisión Nacional del Mercado de Valores (CNMV) in accordance with obligations stipulated in articles 168 and 203 to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively. The services provided by PIMCO Europe GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication.| PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2) . The services provided by PIMCO (Schweiz) GmbH are not available to retail investors, who should not rely on this communication but contact their financial adviser.
“Net zero commitments are set to revolutionise the world of long-dated real assets”
fixed income
How effective are your investments?
Social impact
Important information
Case Study – JICA Deep Dive
Following the launch of Columbia Threadneedle Investments' CT Global Social Bond Fund, Professional Pensions and Investment Week spoke to the investment team to discuss the current landscape for impact investing, its challenges, and how this new fund helps to address the many social challenges facing the world today.
Social issues being discussed include inequality – a problem plaguing all economies, but especially in richer ones.
Columbia Threadneedle Specialist Funds (UK) ICVC (“CTSF”) is an open-ended investment company structured as an umbrella company, incorporated in England and Wales, authorised and regulated in the UK by the Financial Conduct Authority (FCA) as a UK UCITS scheme. This material should not be considered as an offer, solicitation, advice or an investment recommendation. This communication is valid at the date of publication and may be subject to change without notice. Information from external sources is considered reliable but there is no guarantee as to its accuracy or completeness. The CTSF’s current Prospectus, the Key Investor Information Document (KIID)/Key Information Document (KID), latest annual or interim reports and the applicable terms & conditions are available from Columbia Threadneedle Investments at PO Box 10033, Chelmsford, Essex CM99 2AL, your financial adviser on our website www.columbiathreadneedle.com. In the UK: Issued by Threadneedle Investment Services Limited. Registered in England and Wales, Registered No. 3701768, Cannon Place, 78 Cannon Street London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.
making a real difference.
Financial promotion. Capital at risk.
or BROWSe OTHER CHAPTERS
READ THE FIRST ARTICLE >
Social ratings: Methodology overview
Chief among the social issues being discussed is inequality – a problem plaguing all economies, but especially in richer ones.
FUND SNAPSHOT
SPOTLIGHT
MENU
HIDE X
ixed income is looking attractive once again, but risks, as well as opportunities, abound. Here’s what’s keeping us up at night – as well as where we see opportunities for fixed income investors.
F
“Xxxxxxxxx xxxxxxxxxx xxxxxxxx xxxxxxx xxxxxxxxxx xxxxxxxxxxxxx xxxxxxxx xxxxxxx xxxxxxxxx xxxxxxxx xxxxxxx xxxxx xxxxxxxx xxxxxxxxxxxx”
Impact investing – the global pursuit of financial returns and positive social and environmental outcomes – has transformed over the past decade. We explore how
Impact investing involves the measurement and reporting of the impact of environmentally and socially conscious investments. In contrast, environmental, social, and governance (ESG) investing refers to the funding of companies that are aligned with an investor’s ESG aims, but do not have the same obligation to prove that investments are delivering measurable outcomes.
What is impact investing?
Tang explains that when they first ventured into impact investing to address social inequality and deprivation, the social bond universe was nearly non-existent. Yet, it has already been a decade since the successful launch of the UK’s first daily liquid bond strategy, the CT UK Social Bond Fund in 2013. This was followed by the 2017 launch of the CT (Lux) European Social Bond, Europe’s first daily liquid social bond fund.
Rising expectations
A pivotal shift in investing over the past 10 years has been the transition from focusing solely on exclusionary practices to a more holistic approach. Exclusionary-based investing focuses on avoiding harm with investments, typically screening out companies with unfavourable ESG characteristics, rather than selecting companies for their positive impact.
Moving beyond exclusion
Andrew Dewar, portfolio manager within the team, explains that an exclusionary approach is no longer enough for many investors.
Tammie Tang, portfolio manager
£43.8bn
This year, buy-in and buy-out volumes could exceed the record £43.8bn seen in 2019.
Source: LCP
Today, the market has grown substantially, and as of June 2023, Columbia Threadneedle manages more than €1bn within its social bond strategies (1).
He says: “The complexity and the sophistication of investors over the last 10 years has moved massively. Exclusionary-based investing no longer cuts the mustard and that's why inclusionary-based investing is so key in how we approach things.”
NEXT ARTICLE >
Bonds are back, although risks persist
< PREVIOUS ARTICLE
The case for a global fixed income approach
Relocating the fixed income opportunity — the case for going global
Blue bonds: long-awaited innovation or yet to make a splash?
In part, due to the challenge of researching and reporting on companies within an impact investing capacity, impact strategies have traditionally been smaller in scale - however, this trend is changing.
Tammie Tang, the portfolio manager leading Columbia Threadneedle Investments’ pioneering social bond strategies, shares the story of how the universe of specific use of proceeds bonds has changed since launching the first social bond fund in the UK over a decade ago.
Andrew Brown, portfolio manager within the team, explains: “Essentially, they are all trying to do the same thing – it is all about how you can enable the bond market to generate positive social outcomes or impacts. It is very well positioned to do so because the bond market is the largest asset class, at roughly $130trn - and in many cases those organisations doing the most impactful work are not able to issue equity, such as development banks, agencies and charities.”
Key to Columbia Threadneedle’s success has been the rising awareness around social inequality and climate issues, both of which are no longer abstract concepts.
Tang says: “Now people understand, thanks to better literature and access to academic work, the problem of social inequality. We do not accept that unequal societies are likely to give us happy, satisfied people with good well-being, stable community, and politics. By targeting better outcomes for people in need, we seek to benefit and support not just them but all of society.”
Equally, there is also a growing understanding that impact investment does not have to involve the sacrifice of returns. According to a survey from the Global Impact Investment Network (GIIN), 79% of investors saw their financial return expectations met or exceeded, with it rising to 88% regarding their impact expectations (2).
This shift in market expectations from exclusionary to inclusionary is where many asset managers run into challenges. Researching companies with an inclusionary approach can be resource intensive. It involves identifying the opportunities and then evidencing how the investment is delivering an impact on an ongoing basis.
While investing in labelled ‘green bonds’ may appear to be a convenient option, it does not always prove that a company is being intentional with its positive social and environmental activities. Often impact investors need to look beyond labels and judge opportunities through their research.
Tang notes that the intensity of the research required might be one of the reasons for the limited number of alternatives to their social impact bond strategies in the marketplace.
Impact measurement is another key focus of the approach. Columbia Threadneedle Investment partners with The Good Economy, a leading impact advisor that specialises in evaluating long-term sustainable impact.
Andrew Brown explains: “ As part of the Social Advisory Panel for the CT Global Social Bond Fund, The Good Economy will review our investments and opine on how we have rated them, and the Panel has an opportunity to make objections or suggest how we can perhaps improve from a social perspective.”
The panel for the new global strategy comprises of three individuals from The Good Economy, together with two independent members and two appointees from Columbia Threadneedle Investments.
“Where issuers are involved with controversies, we will gauge the views of the Panel to assist our own analysis. We always try to engage where possible with companies when controversies arise - this is not what we would call an exclusionary strategy where something happens, and you instantly want to get it out of the portfolio. We want to understand what has happened, what has the company done to overcome the issue and to ensure that this is not going to happen again."
Another change in impact investing is that it’s being led by public bond markets. Private bond markets have and will continue to play an important role in impact investing, with funders being able to see their engagement through the relationship with the issuer. However, this misses out on the scale available in public markets.
Power of public markets
Tang explains that public bond markets represent a huge investing universe that is some $130 trillion in size. This size represents a broader opportunity set but also requires research to uncover information that may not be immediately available in markets.
She says: “The GIIN in its latest report is seeing lots of growth in the impact market, but it is only looking at private-based markets – the chunk with by far the biggest potential are the public bond markets.”
Looking forward, for impact investing to accelerate its already rapid growth trajectory, harnessing the broader opportunities in public markets will be key. To help the markets meet their potential Columbia Threadneedle Investments has recently expanded its suite of social bond strategies to include the new CT Global Social Bond Fund.
“By targeting better outcomes for people in need, we seek to benefit and support them and all of society”
Andrew Brown, portfolio manager
“We always try to engage with companies - this is not an exclusionary strategy. If a mistake has happened, what has an entity done to overcome that?”
“Columbia Threadneedle Investments partners with The Good Economy to evaluate long-term sustainable impact”
Sources.
(1) Columbia Threadneedle Investments, 30 June 2023 (2) thegiin.org
Share this:
Twitter
LinkedIn
Email
The Social Bond Investment team explains why it has launched the new CT Global Social Bond Fund
n a world marked by increasing economic inequality and environmental challenges, the need for innovative investment solutions that address both financial returns and societal impact has become ever more apparent.
Using an example, Finch highlights the social crisis of the Covid-19 pandemic, and how it broadened people’s attention from just purely ‘environmental’ before the pandemic, to encompass some of the consequences of the pandemic, i.e., health, but also education and employment, all of which are social elements.
Finch says: “The most important thing which determines whether something is coming into the fund is the strength and intensity of the impact of the underlying projects.”
Xxxxxxxxxx, Xxxxxxxxxx xxxxxxx xxxxxxxxxxxxxx
Tammie Tang, the portfolio manager leading Columbia Threadneedle Investments’ social bond strategies, and Charlotte Finch, client portfolio manager, share the thought process behind the launch of the CT Global Social Bond Fund in addition to their UK and European focused portfolios.
Year-on-Year Growth in External Transactions
2017
2018
2019
2020
2021
2022
0.8
1.2
2.2
1.8
2.5
4.0
5.5
4.2
4.8
Standard Life external BPA volumes
Total Standard Life BPA volumes
£6bn £5bn £4bn £3bn £2bn £1bn 0
Tang explains there is significant academic work, including from the popular book The Spirit Level, which shows that worse outcomes are typically more prevalent in more unequal societies.
Economic inequality matters
Core to the team’s thinking is the idea that inequality is a global problem. While the firm’s UK and European social bond strategies are already addressing inequality in their respective regions, they estimate that over two-thirds of inequality comes from within country inequality globally, indicating that their work has only started.
She says: “The country itself could be quite rich but if there is a big spectrum of inequality, then you will typically find worse outcomes overall for health, wellbeing, and satisfaction. Those same studies prove that with a narrowing of that gap, the outcomes improve.”
What differs social bond strategies from environmentally focused funds is how they prioritise outcomes for people. This means Columbia Threadneedle’s social bond strategies don’t look exclusively at social bond issuers when researching an opportunity, their primary aim is to deliver social impact.
Social vs Environmental
Tang explains that with the global opportunity set the pool of bonds at their disposal jumps from roughly $0.5 trillion in the UK to $15 trillion globally, which represents a jump from a few hundred issuers to nearly 4,000.
Looking to deliver maximum impact is one of the reasons why Columbia Threadneedle is going global with its new strategy. A key benefit to reaching further is the global investing universe gives scope for broader social impact as well as financial returns.
Maximising Impact
Charlotte Finch, client portfolio manager
“The most important thing is the impact of the underlying projects”
Tang adds: “Our ambition does not stop here. The intent has always been to scale our impact and go global with our investment philosophy.”
For example, in the UK, wealth is spread unevenly between the North and the South. The South East is the wealthiest region with a median total household wealth of £503,400; in the North East that number falls to £168,500 per household (1). This stark inequality is reflected in the disparity in school spending in both regions, with London schools receiving 9.7% more funding that schools in the north (2).
Falling education spending and regional inequality lead to not only academic underachievement, but children born into the poorest fifth of households are 13 times more likely to experience poor health outcomes by the age of 17 (3).
With inequality being the focus rather than a country’s overall wealth, it is no surprise that Europe (including the UK) and North America receive 45% and 28% respectively of the funding allocated in the CT Global Social Bond Fund (4).
Dewar emphasises the investor appetite to engage with this broader opportunity set – especially as fund flows suggest investors are demanding more ESG and sustainability focused funds, rather than just general global corporate funds. Meanwhile, PWC’s Asset and wealth management revolution 2022 report noted 84% of institutional investors in Europe plan to increase their allocations to ESG products over the next two years.
Part of the opportunity in going global comes with its added complexity. Each global issuer on average has around five bonds outstanding, which results in there being many different bonds to invest in. These bonds can feature different maturities, capital structures, and covenants which affect pricing and create interesting investment opportunities.
Complex Opportunities
Tang says: "The fund looks like a conventional fund. Risk-wise, it is predominantly European, US, and UK focused; the latter two we are among the leaders in having the most unequal societies. At its core, it's a high-grade fund, so eligibility in terms of global or more emerging market type of regions is open so long as it meets that criterion.”
Crucially, opportunities can appear where investors may not typically expect them. Byatt explains how sometimes people don’t realise how broad the impact market really is and assume it only includes their government, charities, or local authorities.
She says: “Banks and all sorts of corporates that you wouldn't really expect sometimes have impactful projects that engage with this market. And that's been a really valuable investment opportunity for us.”
New River, the shopping centre owner is a good example of measurable social impact. Its shopping centres have organised for an autism hour every month where families, carers, and people living with autism can go to the shops with very little of the stresses that people who are living with autism normally must deal with. Radios and music are turned off, the lights are dimmed, and there are no deliveries happening during that hour, because these all contribute to noise and stress.
The firm also organises education and outreach programmes in local schools where underprivileged children are given access to give workshops and sometimes apprenticeships and internships.
Part of what the Social Bond Investment team is undertaking by going global is expanding the scope of issuers and investors it can educate on impact investing process. While markets have matured and impact investing has grown as a result, so too have interpretations of what impact investing is. This can result in different investors having different metrics and definitions that might not be aligned and comparable to global standards.
Tang says: “Whilst still a nascent area of the credit market, social bonds have reached a maturity that means investors can access a wide range of opportunities, without sacrificing returns. These help to address health inequality, access to affordable housing and employment disruption from climate transition.”
“Social bond investing can form a great complement to existing credit allocations and for Defined Contribution pension scheme members, offers a great way for them to see their money is financing good in the world”, adds Tang.
“Children born into the poorest fifth of households are 13 times more likely to experience poor health outcomes by the age of 17”
“Social bonds have reached a maturity that means investors can access a wide range of opportunities, without sacrificing returns”
(1) equalitytrust.org.uk (2) ft.com (3) healthequitynorth.co.uk (4) Columbia Threadneedle Investments, as at 31 March 2023.
We used to think of the E and the S as being almost separate, but the pandemic highlighted that you really can't and shouldn't separate the two. If we get the environment wrong, it's going to create some of the worst social consequences. And if we get the environment right, being aware of the astronomical cost, then we need to make sure that the cost of that transition is not at the doorstep of those in society least able to afford it. We need to transition those jobs and those communities across to the low carbon future.
n a world marked by increasing economic inequality and environmental challenges, the need for innovative investment solutions that address both financial
Investment OVERVIEW
We target social outcomes according to a hierarchy of needs
Xxxxxxxxxxxxxx
Fundamental credit research process - Issuer level What our financial analysts consider at company level research
PerfoRmance (%)
OVERVIEW
Credit analysis
Management
Regulation
Capital structure
Government analysis
Credit opinion
Model - Financial Modelling ESG assessment Transparency Industry Country Event risk
• • • • • •
History, experience Incentives Track record Shareholder activisim
• • • •
Analyst conviction Pricing Liquidity Relative value
Financial tests Covenants Management Intent
• • •
Legal protection Legal burden Potential changes
Subordination Collateral HoldCo vs. OpCo Currency
Credit Research Process
Credit analysts
Outputs
Forward looking credit rating Risk score (R1-4) Market recommendation
Credit Thesis
Primary Social Needs
Basic Social Needs
Social Enabling
Social Empowerment
Social Enhancement
Social Facilitation
Societal Developments
Education & Training
Primary & Secondary Vocational training & apprenticeships
• •
Further & Adult education
•
Social housing Key worker housing
Independent living housing Care homes
Affordable Housing
Physical Health Mental Health
Healthy Living Rehabilitation & support
Health & Welfare
Creation of jobs in deprived areas; and Good employment standards
Employment
Local amenities, services & environment Care services
Community
Personal (e.g. elderly) Other community services
Sustainable development Public & community transport Urban & community regeneration
Infrastructure & utility development Environment & agriculture
Economic Regeneration & Development
Affordable financial products First time mortgages
Professional services Communication & broadcast services
Access to services
Click on a segment to view details
Click on icons to view more
8.06
7.91
-10.51
-11.00
-1.67
-1.33
4.81
4.80
5.91
5.85
4.19
3.87
10.20
10.60
1.02
0.71
11.61
12.35
-0.01
-0.56
2023
2016
2015
2014
Excess Return
+0.13
+0.55
+0.35
+0.01
+0.05
+0.31
-0.36
-0.30
-0.65
CT UK Social Bond Fund
BofA Merrill Lynch 1-10 Sterling Non-Gilt Index
Past performance is not a guide to future returns. Your capital is at risk.
Aims to deliver UK investment grade corporate bond type returns from investments that provide positive social outcomes in the UK
Focus on bottom-up, fundamental financial and social analysis Dynamic and innovative Social Assessment Methodology guides investment decisions Emphasis on downside risk management
Click on tabs to view strategies
Source: Columbia Threadneedle Investments and FactSet, as at 31 December 2023. Gross of fee fund returns are time-weighted rates of return net of commissions, transactions costs and non-reclaimable taxes on dividends, interest, and capital gains using pricing of investments which is either the last traded price or a bid basis. Cash flows are factored as of the end of the day and exclude entry and exit charges. Index returns include capital gains and assume reinvestment of any income. The index does not include fees or charges and you cannot invest directly in it. The return of your investment may change as a result of currency fluctuations if your investment is made in a currency other than that used in the past performance calculation. Excess return refers to the return from an investment above the benchmark. 1 Since inception is fund inception of 5 December 2013. Please note that the Index was introduced on 6 April 2017, therefore performance before this period is not available.
Source: Columbia Threadneedle Investments, as at 31 December 2023. Gross of fee fund returns are time-weighted rates of return net of commissions, transactions costs and non-reclaimable taxes on dividends, interest, and capital gains using pricing of investments which is either the last traded price or a bid basis. Cash flows are factored as of the end of the day and exclude entry and exit charges. Index returns include capital gains and assume reinvestment of any income. The index does not include fees or charges and you cannot invest directly in it. The return of your investment may change as a result of currency fluctuations if your investment is made in a currency other than that used in the past performance calculation. * Since inception is fund inception of 31 May 2017. 1 Relative return is shown on a geometric basis.
Click on tabs to view funds
Actively allocate capital to support or fund socially beneficial activities and development principally in Europe Deliver, after fees, a corporate bond market return, as well as social alpha.
Focus on bottom-up, fundamental financial and social analysis Dynamic and innovative Social Research Methodology guides investment decisions Emphasis on downside risk management
CT (Lux) European Social Bond
Merrill Lynch Euro Non-sovereign Index (50%) and Merrill Lynch Euro Corp Euroland Issuers Index (50%)
+0.50
-0.60
-0.45
+0.77
+0.33
+0.06
+0.00
2017*
8.03
7.50
3.53
2.74
6.07
5.72
1.11
-0.83
-0.77
-1.90
-1.46
-15.00
-14.49
Past performance is not a guide to future returns.
Source: Columbia Threadneedle Investments, as at 30 September 2023 and in EUR. Based on global close valuations with cash flows weighted at start of day and excluding entry/exit charges andongoing charges, and net of transaction costs. The Index does not include fees or charges and you cannot invest in it. The return of your investment may change as a result of currency fluctuations ifyour investment is made in a currency other than that used in the past performance calculation. The return of your investment may change as a result of currency fluctuations if your investment is madein a currency other than that used in the past performance calculation. (*) Since inception is fund inception of 31 May 2017.
Actively allocate capital to support or fund socially beneficial activities and development globally Deliver, after fees, a corporate bond market return, as well as social alpha.
Lead Manager
Deputy Managers
Benchmark
Duration
Yield
Portfolio rating
Portfolio holdings
Global Regions
High Yield (B- or above)
Social Partners
Core Partner
Independent
Tammie Tang
Andrew Dewar Andrew Brown
Barclays Global Credit Aggregate (hedged)
6.1 years
4.8% (GDP hedged yield)*
A2/A3
75-125 (at launch)
US, Europe, UK, Asia & Asia Pacific and Supranationals
1-3& (at launch), subject to 10% max
The Good Economy
Steward Redqueen
Portfolio manager
€408 million
66% from European issuers
80% of outcomes in Europe
50% Bank of America Merrill Lynch Euro Non-sovereign Index 50% Bank of America Merrill Lynch Euro Corp Euroland Issuers Index
Deputy PMs
Fund Size
Domicile
Focus
Average duration
4.7 years (4.9 years)
Average yield
4.3% (4.3%)
Average rating
A(A)
Lead Fund Manager
January 2014
£396m
66% of domiciles in UK
80% of outcomes in UK
BofA Merrill Lynch 1-10 Year SterlingNon-Gilt Index
3.6
129 issuers
Deputy Fund Managers
Launch date
Effective duration (years)
5.7
3.7
6.5
6.2
A
A+
1
Portfolio
Non-Gilt Universe
1-10 Yr Universe*
EUROPEAN SOCIAL BOND STRATEGY
UK SOCIAL BOND STRATEGY
GLOBAL SOCIAL BOND STRATEGY
Return to tab menu
Track record Shareholder activisim
History, experience Incentives
Liquidity Relative value
Analyst conviction Pricing
Social housing Key worker housing Independent living housing Care homes
Primary & Secondary Vocational training & apprenticeships Further & Adult education
Local amenities, services & environment Care services Personal (e.g. elderly) Other community services
Affordable financial products First time mortgages Professional services Communication & broadcast services
BACK
NEXT
1 / 2
Source: Columbia Threadneedle Investments and FactSet, as at 30 September 2023. Fund returns gross of tax and TER (GB00BF233790) for comparison with indices. All data isquoted in GBP. From 01.04.2010 fund gross returns are calculated in FactSet using daily official Global Close valuations and daily cash flows. All prices are calculated by the fund's administrator. Gross of fee fund returns aretime-weighted rates of return net of commissions, transactions costs and non-reclaimable taxes on dividends, interest, and capital gains using pricing of investments which is either the last traded price or a bid basis. Cash flowsare factored as of the end of the day and exclude entry and exit charges. Index returns include capital gains and assume reinvestment of any income. The index does not include fees or charges and you cannot invest directly in it. The return of your investment may change as a result of currency fluctuations if your investment is made in a currency other than that used in the past performance calculation. Benchmark was BofA Merrill Lynch 1-10 YearSterling Non-Gilt Index from 6 April 2017 and BofA Merrill Lynch Sterling Non-Gilt before 6 April 2017. The relative returns shown are calculated on a geometric basis. 1 Since inception is fund inception of 5 December 2013.
CT UK SOCIAL BOND FUND
Threadneedle (LUX) european social bond
Threadneedle global Social Bond
The Social Bond Investment team breaks down their investment process in their social bond impact funds
2
Tang: As a starting point we exclude everything you could guess to be non-social, non-beneficial to society. We exclude tobacco, alcohol, gaming, weapons, those failing on global standards, in controversies, etc. With that initial screening, we cull half of that conventional universe before we do our deep dive.
How do you limit the ecosystem of companies you research prior to investing?
These events are all trigger points for renewed volatility, which active diversification across different regions may help mitigate.
Social Rating Methodology
Source: Columbia Threadneedle Investments
FIND OUT MORE ABOUT WELLINGTON'S FIXED INCOME CAPABILITIES
(L-R) Andrew Brown, portfolio manager; Letty Byatt, social impact analyst; Tammie Tang, lead portfolio manager; Andrew Dewar, deputy portfolio manager; Charlotte Finch, client portfolio manager
Byatt: There are a couple of ways that we filter down the list. One way is the credit analysts that we have in the team. This is a key part of the process because they know these companies inside out. They know what the companies are doing day-to-day, and they can flag to us anything interesting. We can then go and engage with these companies.
How do you decide where to deep dive?
There have been several instances where a company that you wouldn't initially think of as having a really big social impact, but then you talk to them, and it’s clear they are doing a lot behind the scenes. They often don't talk about their social activities because they don't think anyone is interested!
The specific use of proceeds’ labelled space is useful for identifying opportunities too as it’s an automatic flag. When you're looking at the global market, there are some big key players who are doing social impact and have been doing it for decades.
We can look to invest from a sector point of view too. For instance, healthcare is trying to help people. We just need to find out which ones are having the best social impact, and are really targeting vulnerable populations, providing medicine at an affordable price, or sending it to rural areas that aren't otherwise getting access to it.
Dewar: Once we have identified this initial social investment opportunity set, our analysis starts with the financial opportunity. Our credit analysts evaluate issuers using our established, bottom-up credit research process to ensure investment ideas meet the necessary financial, governance and liquidity requirements for inclusion in the portfolio. A bond will not be included if it fails the financial analysis.
What is your social rating methodology?
We then apply that same research intensity principle to the social impact assessment. Unlike the financial evaluation which considers issuing entity-level analysis, our social impact analysis is conducted at bond level, as different bonds by the same issuer can deliver different social outcomes. There are two parts of our social impact analysis: a qualitative and quantitative component we call the social ‘intentionality’ and social ‘intensity’ respectively.
We then use our proprietary bottom-up social assessment process to provide a social impact score to categorise and rate each and every bond’s eligibility, which is led by the Social Bond Investment team but also reviewed by our social partner, The Good Economy.
Tang: I would say for those not invested and have no idea, it's that an impact investment does not involve the sacrifice of return. Our benchmark is a standard global credit index, so clients can expect a return consistent with a traditional credit mandate.
What do people not know about impact investing and what you do?
Finch: When we first started this strategy in 2013, very few labelled bonds existed, let alone social bonds. So our impact assessment methodology was built to ensure we could identify companies offering the greatest social impact. We don't restrict ourselves by sticking to labelled bonds. We can also invest in any issuers who are social by nature.
Impact Investment
Investment with impact
B
Development Finance
C
Funding has clear and specific social objectives, impact and reporting
Funding does not have explicit social objective but social impacts identifiable
Investments in capacity, infrastructure and projects that contribute to social and/or economic development
Social intentionality
Qualitative assessment of the "strength" of social intentionality, across 3 levels of impact
Quantitative assessment of the social 'intensity', across 9 measures (to score within 0 to 31)
Social intensity
Social mapping (who, where)
Socio-economic/Deprivation focus Regional score Positive peace score
(max 4) (max 4) (max 2)
Social hierarchy of needs Additionality (new funding) Additive, secondary benefits Funding usage (social targetting)
(max 5) (max 5) (max 2) (max 2)
Social focus (what)
Quality of reporting Clarity of impact
(max 2) (max 5)
Impact transparency
TOTAL
(max 31)
Fallen ANGELS / OUT OF SCOPE - D
>
Andrew Dewar, deputy portfolio manager
“Once we have identified our social investment opportunity set, our analysis starts with the financial opportunity”
We then use our proprietary bottom-up social assessment process to provide a social impact score to categorise and rate each and every bond’s eligibility, which is led by the Social Bond Investment team but also reviewed by our social partner, The Good Economy. The first step assigns an impact category of either A, B or C, the second step assigns a social intensity score from 0 to 31 (which is sorted into quartiles). Overall, the process generates a discrete social score (A1 to C4), which is used to compare bonds meeting different social needs and monitors the degree of the portfolio’s social intensity over time.
Letty Byatt, social impact analyst within the team, explores the group’s investment with the Japan International Corporation Agency (JICA) and how it reaped positive financial outcomes as well as aligned with the fund’s commitment to creating positive social change
olumbia Threadneedle Investments recent investment into JICA showcases the team's strengths of their in-depth research methodology. When they engaged, JICA had only issued general proceeds bonds on the european and USD
The key to accessing opportunities such with JICA, is letting companies know it’s possible in the first place. Byatt explains that they’ve met companies before where despite having the potential to raise capital, companies didn’t think it was possible because they couldn’t ring fence what they consider ‘social’ in their work.
Learning what is possible
“The reason we love them is because they don't stop at just funding infrastructure. They consider the environmental impact of each project ”
Blue bonds - a long-awaited innovation?
FIND OUT MORE ABOUT WELLINGTON'S SUSTAINABLE FIXED INCOME CAPABILITIES
markets, but were issuing labelled sustainability bonds in the Japanese market. We knew they could bring a sustainability labelled issuance to these major markets.
She says: “We talked a lot (with JICA) and said if they considered issuing labelled debt on the US market it would go bananas – fast forward to April this year when they issued the bond, and it did go bananas as a lot of funds could access it now since it was labelled.”
One of the reasons for the demand of JICA’s sustainability bond was that its proceeds went into supporting sustainable development projects. JICA’s three missions include ending poverty, creating and improving human equality, and human security.
Byatt explains that when they put a bond into the fund, they link it with a UN Sustainable Development Goal as well as link it to at least one of the underlying targets. In the case of JICA, it was mainly supporting infrastructure.
She highlights: “The reason we really love them is because they don't stop at just funding infrastructure. For every single project they undertake, they're considering the environmental and social impact of that project and the outcomes. This approach of transparency and thoughtfulness gives us confidence that the underlying projects will have positive social outcomes without doing significant harm elsewhere. ”
Citing a particular JICA project in Delhi, India, Byatt explains how JICA addressed social outcomes including gender with the construction of a railway. While the railway already had a huge social benefit as it allowed people to get into the main city for work, shopping, and schools, the project went the extra mile by including a women-only carriage with a security guard during rush hour.
This was the result of JICA speaking to the target population and listening to public requests. Moreover, the organisation has since conducted surveys to hear the voice of the people and whether the impact had been positive.
Noting on the results of the survey, Byatt says: “Women felt much safer going into work and school via public transport. We were really delighted that they took this theme the whole way through the project and made a real point of making sure that the impact was going to be positive and confirming that with the target population.
Looking to the future she explains how they have tried to encourage other issuers to similarly report on the social impact of their investments. Often companies don’t go into detail in their annual reports regarding their social impact, partly because it can add cost and issuers may not be aware prospective investors would be interested in it.
She says: “As investors we need to keep telling them that we're really interested in what they're doing from a social perspective. That message does get through.”
Letty Byatt, social impact analyst
Social bond rating
JICA General Proceeds Bond
Credit rating
Social needs category
A1
Basic social needs
Use of proceeds
General social benefit
SDG
9-Industry, innovation and infrastructure
Reporting - Use of proceeds
Targeting socioeconomic development in the word's least developed and low income countries
Proceeds go towards projects including clean transport, access to education and healthcare, peacebuilding and climate response
Individual project level reports include detailed analysis of outcomes
Outcome
Outcomes across all 17 SDGs including clean and safe public transport, renewable energy products, improved agricultural systems, access to water, improved healthcare and education systems
Outcomes across Africa, Asia, Oceania, Latin America, Middle East and Europe
