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Low-carbon investing in credit markets

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There are other solutions to low-carbon investing in credit markets too. Green bonds, for example, which are ‘use of proceeds’ (i.e., the funds raised are earmarked specifically for green projects), are a principle we are very supportive of. But we often see shortcomings in this market, something we at RLAM have written on extensively. An area potentially more credible is sustainability-linked bonds, which don’t look at inputs, but rather at a company’s outputs. Borrowers set clear ESG targets, which if not met, trigger a modest increase in coupon.

While the sustainability-linked bond market is still very small compared with ‘use of proceeds’ bonds, we need to be careful to ensure targets are meaningful. However, a focus on delivering outcomes has to be a far more credible proposition.

The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested.

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For Professional Clients only, not suitable for Retail Clients.

This is a financial promotion and is not investment advice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and are not investment advice.

Issued in April 2022 by Royal London Asset Management Limited, 55 Gracechurch Street, London, EC3V 0RL. Authorised and regulated by the Financial Conduct Authority, firm reference number 141665. A subsidiary of The Royal London Mutual Insurance Society Limited.