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Avoiding ‘sunset’ whilst identifying ‘sunrise’ industries
Harrison Hill explains how we seek to offer dedicated solutions which give investors access to what we believe to be strong forward-looking sustainability themes in public fixed income markets, while diversifying beyond the nascent ESG-labelled bond market.
Our analysis revealed several secular megatrends that are transforming our world in an unsustainable way. These include social developments such as a growing and ageing population, unsustainable lifestyles, and increasing disparities in education and healthcare. Environmental challenges range from climate change to escalating water stress, waste, pollution, and unsustainable land use.
To contribute to tackling these sustainability challenges, we have developed a proprietary impact-aligned bond investment framework orientated around seven sustainability investment themes. Three are social themes (Achieving an inclusive society, building knowledge & skills and Ensuring good health, safety & wellbeing) and four are environmental themes (Enabling a circular economy, Ensuring clean & plentiful water, Promoting clean & safe energy, and Promoting sustainable mobility & infrastructure). This multi-thematic approach is a cornerstone of our investment philosophy for the impact-aligned strategy and, we believe, a key differentiator versus some of our peers who focus solely on either environmental or social themes within their fund. We recognise that both considerations must be addressed hand in hand, given their interconnectedness. For instance, with climate change, the low carbon transition cannot work unless it also addresses the social aspects, illustrating that it requires both dimensions to work synergistically.
While we drew inspiration from the UN Sustainable Development Goals (SDGs) in creating our sustainability themes and report on the portfolio alignment to these, we intentionally avoided using them as an investment filter. Our reasoning being that firstly, the SDGs are a framework developed by governments, for governments to achieve sustainable development; and secondly, we recognise the scope of the framework is intended to last until 2030, and ultimately our strategy seeks to continue beyond this timeframe.
Our investment process centres on seeking to have intentionality by having a positive contribution to people and the environment. Our seven themes signpost to the impact and outcomes we look to make by either investing in companies whose core business is in these areas or in bonds which fund activities seeking to solve for some of the world’s major sustainability challenges. By seeking to be at the forefront of these trends, we believe we can help support issuers working to improve living standards across the world.
For example, in the industrials sector, we look to challenge the traditional linear ‘take-make-waste’ production model that results in waste and pollution. Our circular economy approach aims to support issuers looking to design out waste by keeping products and materials in use, regenerating natural systems, and fostering innovation. Additionally, we recognise future market opportunities in education and skills development. Companies that empower individuals to learn, adapt, and evolve will play a crucial role in shaping a sustainable future.
For each investment opportunity we consider, we apply the same rigorous investment and risk management approach, ensuring that each security undergoes thorough analysis, and considering sound fundamentals and the potential to deliver credit alpha — while all being selected through the lens of our sustainability themes.
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