Market Insights

Now, more than ever, there is a greater need to include sustainable analysis into a portfolio decision-making process, leading to more consistent integration of Environmental, Social and Governance (ESG) factors in investment practices. The call to action at the 2020 United Nations Climate Change Conference was for the financial sector to support the shift to a net-zero carbon economy. 

Moving away from crude distinctions between “brown” and “green”

In order to achieve sustainability goals, investing in green bonds is not the only approach. Green bonds only apply to companies that have assets and projects that can qualify as green, and as such, you would be investing in a company that is already (somewhat) green. A debate surrounds whether there is larger impact in focusing on the transition from brown to green in the world of sustainability.

As ESG factors become increasingly important to investment decisions, the focus has moved away from the binary distinction between brown and green bonds, to concentrating on incentivizing the transition from brown to green at the company level. However, this transition is often more challenging than it appears and certainly does not happen in a day but can be helped by financial institutions globally.

Recent examples of transition bonds

In recent months, a new kind of bond has been introduced to the credit markets, potentially allowing investors to participate in creating positive incentives for companies to move in the right direction from an ESG perspective. This is a new and evolving market, which we are following closely:

• Multinational energy giant, Enel Group issued its first ever SDG-linked bond to help achieve its sustainability goals. Upon review of the bond’s KPI in 2021, the coupon will increase by 26 bps if the objectives have not been accomplished.
• JetBlue signed a new $550mn sustainability-incentivized loan that is linked to the company’s public commitment to become net carbon neutral on its flights in the US. Essentially, the rate on this borrowing facility falls if JetBlue meets certain criteria and sustainability objectives and increases if they fail to do so.

ESG is becoming increasingly important as an addition to traditional credit analysis

At RPIA, we have been a United Nations Principles for Responsible Investment (UN PRI) member since 2018. In line with the six principles, our approach is to incorporate ESG factors into the investment process rather than limiting ourselves to investing in green bonds. Our Credit Research team regularly meets with and talks to management teams of the companies we already invest in, or in which we are considering an investment, and includes ESG in their line of questioning, with appropriate timelines for follow-up discussions where relevant. 

At AIMA’s Trends in ESG & Responsible Investing event, the Head of Client Portfolio Management, Liam O’Sullivan, spoke on the panel about how positive incentives are critical to influencing real change. Divesting could simply lead to a loss of dialogue on ESG factors, whereas more change may be driven by an ongoing dialogue over an appropriate time frame.

AIMA Trends in ESG & Responsible Investing Panelists

Learn More About Our Investment Strategies

The information presented herein is for informational purposes only. It does not provide financial, legal, accounting, tax, investment or other advice, and should not be acted or relied upon in that regard without seeking the appropriate professional advice.

The information is drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does RP Investment Advisors LP (“RPIA”) assume any responsibility or liability whatsoever. The information provided may be subject to change and RPIA does not undertake any obligation to communicate revisions or updates to the information presented. Unless otherwise stated, the source for all information is RPIA. This document does not form the basis of any offer or solicitation for the purchase or sale of securities. Products and services of RPIA are only available in jurisdictions where they may be lawfully offered and to investors who qualify under applicable regulation.

RPIA is a signatory of the UN Principles for Responsible Investment and as part of our commitment, we consider Environmental, Social & Governance (“ESG”) factors as part of our firm-level activities, including our investment process. ESG factors are important considerations in our investment management process but is supplemental to our primary financial and credit research and analysis functions. 

ESG factors that may be considered as part of our investment process include matters relating to climate change, energy use, energy efficiency, emissions, waste, pollution, matters related to human rights, impact on local communities, labour practices, employee working conditions, health and safety of the employees and affiliates, employee relations and diversity, executive compensation, bribery and corruption, board independence, board composition and diversity, alignment of interest between the shareholders and the executives, shareholder rights, and companies’ policies relating to ESG.

ESG integration, including components relating to issuer engagement, is a firm-wide investment approach but the weight and importance of it in our investment management process can vary across the investment funds we manage. Always refer to the relevant fund offering documents for important information on the investment objectives, strategies and associated risks of a particular fund. The consideration and implementation of ESG factors are also subject to RPIA’s internal investment and risk management policies and may be revised as a result of investment suitability requirements, current portfolio positioning and external market and economic factors. 

The consideration of ESG factors in the investment process for RP Strategic Income Plus Fund and RP Alternative Global Bond Fund is weighted less than the core financial and credit analysis employed in the management of these funds. Please see the simplified prospectus for additional information.