Partner Insight: The great sustainable credit catch-up

Royal London Asset Management’s Mike Fox and Rachid Semaoune tell how they launched a new global sustainable credit fund into the fast-maturing sustainable credit markets

clock • 6 min read
Partner Insight: The great sustainable credit catch-up

Sustainable credit investing is growing up as a way for investors to help meet the world's challenges. "It may eventually be bigger than sustainable equities," says Mike Fox, one of sustainable investing's most experienced practitioners, "and market practices might only take another two or three years to catch up."

That fast-paced maturation will be packed with challenges. "There's huge opportunities within sustainable credit but you are entering a much more virgin territory, with a lot of formation of ideologies and approaches - you have to be able to work with that," he says.

Last February, Fox teamed up with Rachid Semaoune, an experienced credit fund manager, to add the Royal London Global Sustainable Credit Fund to RLAM's well-established sustainable range, building on the range's existing sterling sustainable credit elements. The pair have strong views on the differences between sustainable credit and equity - and why proprietary research and a global perspective could offer big advantages on the credit side.

Credit challenges

"One key difference between global sustainable credit versus equity," says Semaoune, who manages the new fund, "is that there are large market areas you can only access within global credit, such as social housing, because there is no publicly-listed equity." He says that a big advantage of RLAM's proprietary ESG research is that it helps uncover opportunities in credit areas not covered by third-party equity-oriented ESG ratings.

Social housing, which provides affordable decent housing for the wider population that cannot afford to buy a property, also demonstrates how a company's sustainable and credit characteristics can interact.

"If a housing provider offers a sustainable approach that includes strong protections for tenants, clients are more likely to rent the same property on a long-term basis: in Germany, some families rent the same property throughout their entire life," says Semaoune. Predictable cash flows and high-quality residential assets tend to reduce financial risk. "In fixed income, we love ‘stable and boring' because our upside is capped and our downside is unlimited," he says.

Diversity dividend

The UK has a significant social housing sector but Semaoune says that, in some investment sectors, the only way to access a wide opportunity set is to look across national boundaries.

"Take next-generation medicine, a relevant theme in the light of the pandemic, where there are only three healthcare companies with sterling-denominated bonds outstanding. The industry space is dominated by large US pharmaceutical companies - so going global means you suddenly move from three issuers to well over 80." That means, he says, "we have the chance to build a much more strongly diversified portfolio by holdings, sector, geography, and currency than if we were just investing in one region of the world."

Carbon conundrums

Building a global portfolio is still hard work. "One of the challenges was trying to find the right renewable energy companies in North America," says Semaoune. "Europe is well ahead of the US in transitioning to a decarbonised economy. You can find attractive renewable energy companies and utilities in the US, but it took deep analysis and help from our ESG team."

For professional clients only, not suitable for retail clients. The views expressed are the contributors' own and do not constitute investment advice.

Click here to read more from the RLAM team on why sustainable credit needs a special approach


Past performance is not a guide to future performance.

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

Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss.

Credit Risk: Should the issuer of a fixed income security become unable to make income or capital payments, or their rating is downgraded, the value of that investment will fall. Fixed income securities that have a lower credit rating can pay a higher level of income and have an increased risk of default.

Derivative Risk: Derivatives are highly sensitive to changes in the value of the underlying asset which can increase both Fund losses and gains. The impact to the Fund can be greater where they are used in an extensive or complex manner, where the Fund could lose significantly more than the amount invested in derivatives.

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Emerging Markets Risk: Investing in Emerging Markets may provide the potential for greater rewards but carries greater risk due to the possibility of high volatility, low liquidity, currency fluctuations, the adverse effect of social, political and economic instability, weak supervisory structures and accounting standards.

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Interest Rate Risk: Fixed interest securities are particularly affected by trends in interest rates and inflation. If interest rates go up, the value of capital may fall, and vice versa. Inflation will also decrease the real value of capital.

Leveraged Risk: The Fund employs leverage with the aim of increasing the Fund's returns or yield, however it also increases costs and its risk to capital. In adverse market conditions the Fund's losses can be magnified significantly.

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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 authors at the date of publication unless otherwise indicated, which are subject to change, and are not investment advice.

The Royal London Global Sustainable Credit Fund is a sub-fund of Royal London Asset Management Bond Funds plc, an open-ended investment company with variable capital and segregated liability between sub-funds. Incorporated with limited liability under the laws of Ireland and authorised by the Central Bank of Ireland as a UCITS Fund. It is a recognised scheme under section 264 of the Financial Services and Markets Act 2000. The Investment Manager is Royal London Asset Management Limited. Most of the protections provided by the UK regulatory system, and the compensation under the Financial Services Compensation Scheme, will not be available.

Royal London Sustainable Managed Income Trust, Royal London Sustainable Managed Growth Trust, Royal London Sustainable Diversified Trust, Royal London Sustainable Word Trust and Royal London Sustainable Leaders Trust are held within RLUM Limited Unit Trusts, which is an authorised unit trust scheme. The Manager is RLUM Limited, authorised and regulated by the Financial Conduct Authority, with firm reference number 144032.

The Royal London Global Sustainable Equity Fund is a sub-fund of Royal London Equity Funds ICVC, an open ended investment company with variable capital with segregated liability between sub-funds, incorporated in England and Wales under registered number IC000807. The Authorised Corporate Director (ACD) is Royal London Unit Trust Managers Limited, authorised and regulated by the Financial Conduct Authority, with firm reference number 144037.

For more information on the funds or trusts or the risks of investing, please refer to the Prospectus or Key Investor Information Document (KIID), available via the relevant Fund Information page on

Issued in June 2021 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.

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