The Big Exchange announce the introduction of the BlueBay Impact-Aligned Bond Fund.
This article does not constitute investment advice. If you are unsure whether an investment is suitable for your circumstances, you should contact an independent financial advisor.
RBC BlueBay is part of the asset management division of Royal Bank of Canada (RBC). Its offering includes specialist fixed income management, ESG (Environmental, Social & Governance) research, and dedicated impact investing strategies.
The RBC investment team believes that high-quality in-house research can deliver attractive returns. Analysis of the wider economic outlook complements this research, and regular meetings are held with global policy makers, company management and regulators.
Furthermore, BlueBay place ESG factors at the heart of their investment process. The ESG specialists sit within the broader investment team, and their analysis is a key part of the research, decision-making, and portfolio construction process.
In fact, this fund goes beyond ESG integration by employing a solutions-driven approach, striving to deliver positive outcomes for people and planet, which you can read more about below.
The fund’s objective is to generate a target return of 2-4% above cash by investing thematically, across industries and geographies, in bonds (a type of loan). The managers believe that bonds which contribute to solutions to major environmental and social challenges can offer both positive impact and financial returns.
The fund primarily invests in corporate bonds (those issued by companies) but may also hold sovereign bonds (issued by governments). These bonds will typically be from issuers in developed markets, with investment grade ratings (the highest quality) though there may be some limited exposure to higher yield bonds and Emerging Markets bonds.
In addition to negative screening (removing ‘bad’ industries and companies from the investment universe), the strategy follows a proactive, inclusion-based approach. As well as traditional bonds with sustainable characteristics the fund holds ‘ESG labelled’ bonds, such as green, social or sustainability (linked). Green or social bonds fund projects which aim to deliver environmental and/or social benefits (respectively) whilst the interest coupons of sustainability-linked bonds are tied to the issuer’s achievement of explicit sustainability targets such as the UN Sustainable Development Goals.
That said, whether a bond is ESG-labelled or a traditional issue the core economic activity it finances must have a positive impact (contribute to solutions to major environmental and social challenges) to qualify for investment by this fund. The team believes bondholders have a key role to play in engagement with the firms, governments or other public bodies which issue them, so they push to facilitate change through direct dialogues, collaborations, and partnerships. The firm is a member of the Global Impact Investing Network (GIIN) and Pensions for Purpose.
The managers look to invest in companies that address specific sustainability themes including: a growing and ageing population, rising obesity, disparities in education opportunities, long term climate change, water stress & scarcity, mounting waste, and unsustainable land use.
The fund may therefore have exposure to activities which encompass education, training, and development; enhancing health, safety, wellbeing and facilitating healthy lifestyles; inclusive access to essential services; sustainable consumption and resource efficiency; clean and plentiful water and good sanitation; more sustainable transport, buildings, and infrastructure; and enabling the low carbon transition through alternative energy sources.
When evaluating companies, the managers try to understand how their core products and services align with the fund’s themes by using various indicators and thresholds. They also look to measure and map impact to the United Nation’s 17 Sustainable Development Goals (SDG’s) which aim to end poverty, protect the planet, and ensure prosperity for all.
The analysis of potential investments covers fundamentals, valuations, technical and ESG considerations. ESG factors are integrated into the credit risk assessment of each individual issuer and any deemed to be of very high ESG risk are automatically excluded from the Fund. The managers also monitor and engage with companies to encourage and support the realisation of positive impacts.
Two types of bonds will qualify for inclusion in this fund - those where the core business activity of the issuer aligns with the selected sustainability themes and those where the bond funds an activity or project that aligns with one of the sustainability themes.
In our impact assessment, we estimated that c.80% of the portfolio is invested in activities which we would classify as offering solutions to environmental and or social challenges, comfortably within the band required for a gold medal (over 70% exposure to solutions).
The fund is most aligned with SDG 3 (Good Health & Wellbeing), SDG 6 (Clean Water & Sanitation) and SDG 9 (Industry, Innovation & Infrastructure).1 Due to the solutions-based thematic nature of this fund and the rigorous exclusionary screening process, exposure to controversies is low.
BlueBay engages in a range of industry, social and environmental initiatives and has exhibited leadership roles in a number of these. It is also involved with multiple collaborative initiatives and maintains a strong stewardship and engagement ethos. Of note is BlueBay's work with the Future of Sustainable Data Alliance to improve the quality of fixed income data (relating to bonds) in the industry. The fund scores 2 out of 3 for positive influence.1
The impact evidence provided by BlueBay is robust. An annual impact report outlines the thematic exposures of the fund and provides summary statistics around carbon intensity and net zero alignment. It also provides revenue-based statistics for the fund on its people and planet themes with comparisons against its benchmark index. The quarterly ESG report provides an engagement summary and a voting summary, along with some illustrative examples of engagement. The fund scores 2 out of 3 for impact evidence. 1
Taking everything into account we believe the fund deserves a gold medal. The main area for improvement we would like to see is provision of more illustrative examples of engagement and tracking of progress whilst additional reporting on social metrics would also be welcome.1
The fund holds a bond issued by this organisation which operates the Motability Scheme in the UK, providing affordable, worry-free transport to more than 700,000 individuals. The Scheme helps customers use their mobility allowance to lease a car, scooter, or powered wheelchair and aims to ensure no one is left behind in the transport revolution. To encourage greener vehicle choices, Motability supports the roll-out of Electric Vehicles (EVs), helps customers adapt to them, and provides practical advice on how to lower carbon emissions. Indeed, Motability Operations committed c.£300m to make EVs more affordable and accessible and their EV fleet grew to over 30,000 in 2023. The business model promotes long-term sustainability and participation in local communities, from advocating best practice disability access to donations and charitable projects. Environmental targets include working to reduce their carbon footprint and applying for a B Corp2 certification (verified by B Lab to meet high standards of social and environmental performance, transparency, and accountability).3
1 The Big Exchange Assessment June 2023
2 https://bcorporation.uk/b-corp-certification/what-is-a-b-corp/
3 Motability Operations Impact Report 2023.
Please remember that when investing, making money is not guaranteed and your capital is at risk. The value of your fund can go down as well as up. Tax treatment depends on an individual’s circumstances and may be subject to change.
This article does not constitute investment advice. If you are unsure whether an investment is suitable for your circumstances, you should contact an independent financial advisor.
The Big Exchange (TBF) Limited is a wholly owned subsidiary of The Big Exchange Limited. The Big Exchange (TBF) Limited is an Appointed Representative of Resolution Compliance Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 574048). (CaRA: 8454)
To learn more about how to become a positive impact investor visit The Big Exchange or follow on Instagram, LinkedIn, YouTube, Twitter or Facebook or download The Big Exchange App to manage how you save, invest and spend your money, all from one place.
