Sustainable Euro Corporate Bond strategy
In 2017, we adapted an existing European credit strategy to create a new sustainable euro corporate bond strategy.
The strategy has three distinguishing features:
- It will only invest where minimum standards for environmental, social and governance (ESG) factors are met,
- It seeks to make a positive impact by favouring issuers with superior sustainability profiles, and
- We will actively engage with companies held to encourage better management of social and environmental issues.
- Unique approach combining core alpha-seeking investment expertise and sustainability criteria: the strategy seeks to outperform a conventional corporate benchmark (the Barclays Euro Aggregate Corporate Index) while also taking ESG and sustainability criteria into account.
- Sophisticated management of ESG factors focusing on impact as well as exclusions: the strategy seeks to positively allocate to companies which have superior ESG profiles or are deemed to have a positive impact.
- Commitment to engagement: we commit to engage with companies with deteriorating ESG profiles with a view to actively influencing their future behaviour.
- In-depth reporting: Insight intends to offer detailed annual reports on ESG and sustainability characteristics resulting from the strategy.
- Established strategy and attractive track record: the underlying euro corporate bond strategy, on which the sustainable strategy is based, has been managed since 2005.
Implementing a sustainable approach
The strategy invests on the basis of our long-established investment philosophy and process, and incorporates quantitative and qualitative inputs. Our sustainable approach builds on this investment process to augment the ESG focus of the strategy.
Insight's sustainable euro corporate bond strategy – a sustainable approach
In the strategy, Insight applies exclusions and screens focused on various ESG and sustainability factors that aim to avoid worst-in-class industry players and unsuitable sectors. Typically 10% to 15% of the benchmark (by value) is excluded. The exclusions leave the strategy with an ESG-optimised universe from which to build a portfolio.
While exclusions are an important part of ESG investing, we believe that investors should also focus on the impact of the investments they are making. In this regard, there are two main pillars to our unique impact strategy. First, using the ESG-optimised universe, we aim to tilt a portfolio in favour of companies with higher ESG ratings while balancing this goal with alpha-generating targets. Secondly, we look to positively allocate to issuers deemed to have a positive social impact. Using a proprietary impact policy, we seek to take an overweight position in ‘positive impact’ bonds. These are bonds issued by companies with material revenue derived from sources aligned with the UN Sustainable Development Goals (SDGs), as well as green bonds that pass our internal assessment framework. (Green bonds are issues where proceeds are used for projects or activities that reduce climate impact.)
Company engagement is an integral part of our credit process. All our analysts regularly meet with issuers to discuss a range of factors, including ESG factors. When the strategy identifies deteriorating ESG performance in one of its holdings, our analysts will engage with the company to establish the reasons and enquire about remedial actions. If relevant problems are not resolved within 12 months, the strategy will sell the bonds.
We believe that focusing on carbon emissions is an important factor for any portfolio aiming to focus on ESG and sustainability-related factors. As part of this focus, the strategy will aim to have a carbon intensity that is significantly lower than benchmark levels.
The value of investments and any income from them will fluctuate and is not guaranteed (this may be partly due to exchange rate fluctuations). Investors may not get back the full amount invested. Past performance is not a guide to future performance.
Derivatives may be used to generate returns as well as to reduce costs and/or the overall risk of the portfolio. Using derivatives can involve a higher level of risk. A small movement in the price of an underlying investment may result in a disproportionately large movement in the price of the derivative investment.
A credit default swap (CDS) provides a measure of protection against defaults of debt issuers but there is no assurance their use will be effective or will have the desired result.
Investments in bonds are affected by interest rates and inflation trends which may affect the value of the portfolio.
The investment manager may invest in instruments which can be difficult to sell when markets are stressed.
Where leverage is used through the use of swaps and other derivative instruments, this can increase the overall volatility. Any event that adversely affects the value of an investment would be magnified if leverage is employed by the portfolio and losses would be greater than if leverage were not employed.
These Funds meets the definition of a covered fund under Volcker regulations.
Any losses in the fund will be borne solely by investors in the fund and not by BNY Mellon (including its affiliates); therefore BNY Mellon's losses in the fund will be limited to losses attributable to the ownership interests in the fund held by BNY Mellon and any affiliate in its capacity as an investor in the fund or as beneficiary of a restricted profit interest held by BNY Mellon or any affiliate.
Ownership interests in the fund are not insured by the FDIC, are not deposits, obligations of, or endorsed or guaranteed in any way, by BNY Mellon. Neither BNY Mellon nor any of its controlled affiliates (which includes the fund's general manager/ managing partner/ investment adviser), may directly or indirectly, guarantee, assume, or otherwise insure the obligations or performance of the fund or of any other covered fund in which the fund invests.