Partner Insight: Seven urgent reasons to explore impact-aligned debt investing

clock • 6 min read
Partner Insight: Seven urgent reasons to explore impact-aligned debt investing

BlueBay’s My-Linh Ngo, and Tom Moulds explain how they defined their new ‘impact aligned’ debt strategy around global challenges and the ‘sunrise’ industries tackling them

"The first filter for our new impact-aligned strategy is whether a company is providing a product or service that addresses a specific environmental or social problem as defined by seven critical sustainability themes," says My-Linh Ngo, BlueBay's Head of ESG Investment.

The seven themes include environmental themes, such as enabling a circular economy and promoting clean and safe energy, as well as social themes such as building knowledge and skills.

"We didn't create the seven themes with the credit market specifically in mind," says Moulds, a senior portfolio manager at BlueBay. "Instead, we brainstormed what we thought were the most important and critical problems facing the world and then built the themes around those."

"If the issuer does fit within the themes," says Ngo, "we next ask, are they involved in any other business activities that breach our ethical exclusions?  Then there's a third hurdle of whether they run their business in a socially responsible and environmentally sustainable way." The survivors are then put through BlueBay's rigorous credit selection process to assess their financial attractions.

She argues that companies helping to solve her seven challenges are part of the world's new ‘sunrise' industries, as opposed to existing carbon-intensive or socially negative ‘sunset' industries.

"We try to quantify the extent to which each business is solving a sustainability problem using a combination of absolute and relative ‘positive materiality' indicators like the percentage of revenues they get from the qualifying product and service - e.g., ideally it needs to be more than 50% of revenues - or the percentage of their profit it contributes, or what global or market share it commands," she says. The more criteria an issuer fulfils, the stronger their case for inclusion.

She prefers a pragmatic, composite approach over one that insists all firms meet all thresholds. "Consider the instance where a company gets 40% of revenues from a qualifying healthcare product, failing the 50% threshold, but that 40% represents 60% of profits," she says. Likewise, a fledgling sustainable firm that spends all its R&D on a qualifying product but has little in the way of revenues might fail a revenue test, but still be a legitimate agent of change.

The world is in a race against time, and Ngo thinks that adopting this kind of impact-aligned stance could help sustainable debt investors scale up their ambitions. "We're looking to fund mass market activities that have positive impact," she says.

"By targeting sunrise rather than sunset industries we are hoping we can generate positive returns as well as promoting low-carbon transition and a more socially responsible society - a real win/win situation."

Click here to learn more about the team's approach to impact-aligned debt investing and why it may prove so important to sustainability

For professional investors only

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This document may be produced and issued by the following entities: in the European Economic Area (EEA), by BlueBay Funds Management Company S.A. (the ManCo), which is regulated by the Commission de Surveillance du Secteur Financier (CSSF). In Germany and Italy, the ManCo is operating under a branch passport pursuant to the Undertakings for Collective Investment in Transferable Securities Directive (2009/65/EC) and the Alternative Investment Fund Managers Directive (2011/61/EU). In the United Kingdom (UK) by BlueBay Asset Management LLP (BBAM LLP), which is authorised and regulated by the UK Financial Conduct Authority (FCA), registered with the US Securities and Exchange Commission (SEC) and is a member of the National Futures Association (NFA) as authorised by the US Commodity Futures Trading Commission (CFTC). In United States, by BlueBay Asset Management USA LLC which is registered with the SEC and the NFA. In Switzerland, by BlueBay Asset Management AG where the Representative and Paying Agent is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich, Switzerland. The place of performance is at the registered office of the Representative. The courts of the registered office of the Swiss representative shall have jurisdiction pertaining to claims in connection with the distribution of shares in Switzerland. The Prospectus, the Key Investor Information Documents (KIIDs), where applicable, the Articles of Incorporation and any other document required, such as the Annual and Semi-Annual Reports, may be obtained free of charge from the Representative in Switzerland. In Japan, by BlueBay Asset Management International Limited which is registered with the Kanto Local Finance Bureau of Ministry of Finance, Japan. In Australia, BlueBay is exempt from the requirement to hold an Australian financial services license under the Corporations Act in respect of financial services as it is regulated by the FCA under the laws of the UK which differ from Australian laws. In Canada, BBAM LLP is not registered under securities laws and is relying on the international dealer exemption under applicable provincial securities legislation, which permits BBAM LLP to carry out certain specified dealer activities for those Canadian residents that qualify as "a Canadian permitted client", as such term is defined under applicable securities legislation. The BlueBay group entities noted above are collectively referred to as "BlueBay" within this document. The registrations and memberships noted should not be interpreted as an endorsement or approval of BlueBay by the respective licensing or registering authorities.

To the best of BlueBay's knowledge and belief this document is true and accurate at the date hereof. BlueBay makes no express or implied warranties or representations with respect to the information contained in this document and hereby expressly disclaim all warranties of accuracy, completeness or fitness for a particular purpose. Opinions and estimates constitute BlueBay judgment and are subject to change without notice. The document is intended only for "Professional Clients" and "Eligible Counterparties" (as defined by the Markets in Financial Instruments Directive ("MiFID") or the FCA); or in Switzerland for "Qualified Investors", as defined in Article 10 of the Swiss Collective Investment Schemes Act and its implementing ordinance, or in the US by "Accredited Investors" (as defined in the Securities Act of 1933) or "Qualified Purchasers" (as defined in the Investment Company Act of 1940) as applicable and should not be relied upon by any other category of customer. 

In the United States, this document may also be provided by RBC Global Asset Management (U.S.) Inc. ("RBC GAM-US"), an SEC registered investment adviser. RBC Global Asset Management (RBC GAM) is the asset management division of Royal Bank of Canada (RBC) which includes BBAM LLP, RBC GAM-US, RBC Global Asset Management (Asia) Limited and RBC Global Asset Management Inc., which are separate, but affiliated corporate entities.

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