Long-term trends like climate change are particularly important for buy-and-maintain investors. How can they integrate climate objectives, such as net zero by 2050, into their portfolios?
The goal of buy-and-maintain credit investing is to provide clients with long-term excess returns over government bonds while remaining within a defined credit risk-budget. But over the timespans involved, environmental, social and governance (ESG) risks presented by secular shifts can impact managers’ ability to deliver those returns. Climate change is an example of such a seismic physical, regulatory, and reputational risk and requires foresight and strategic planning.
Asset owners are increasingly looking to incorporate sustainability goals, including climate objectives such as net zero by 2050, into their investment mandates. The more effectively buy-and-maintain portfolio managers identify and understand such long-term ESG dynamics, the better they should be able to meet clients’ desired net-zero and investment outcomes.
The challenge is ensuring corporate issuers of longer-dated debt held in portfolios are aligned to what the future – both societal and environmental – is likely to look like. But while managers need to keep their clients’ long-term net-zero target in mind, they also need to define and deliver interim objectives along the way.
In this paper, we consider the importance of ESG integration, sustainable outcomes and impact; the benefits of forward-looking and “point-in-time” approaches to measuring progress; data challenges; and why investors should not wait for perfection before taking action.
Download Buy-and-maintain credit: Taking the road to net zero to understand:
- What to think about when defining a climate objective.
- The differences between sustainability objectives and ESG integration.
- How to measure progress.
