Sustainable investing often necessitates reducing portfolio emissions. But adding emission-reduction targets requires a careful navigation of market complexities and risk considerations alongside sustainability objectives. Could using a climate glidepath help? 

Ashley Lester and team help investors find the connections between — and evaluate the risks and potential opportunities of — AI, geopolitics and the effects of climate change, as well as the growing importance of private capital and continued influence of monetary policy.

We look deep into these indexes to determine what’s led to their showing characteristics, such as duration, spread and yield, similar to those of the parent index, as well as similar risk-adjusted performance.

Tradable-bond indexes consist of the most liquid subset of corporate bonds. Maintaining sector and credit-bucket allocations consistent with the underlying benchmark, these indexes may help investors track the market while positioning in more-liquid securities.

A bond portfolio generates cash flows over time that include coupon payments and the face value of matured bonds, assuming no defaults. With controlled and systematic reinvestment of this cash flow, investors can gradually decarbonize their portfolios on a glidepath.

We offer a comprehensive guide for investors to illustrate how a complex set of financial and climate targets and climate investment objectives can be simultaneously integrated into the construction of indexes as well as portfolios.

Green bonds’ issuance by governments has increased significantly and changed the green-bond universe and its indexes. Investors have had to adjust accordingly.   

In this paper, we highlight to investors and portfolio managers the significance of climate-change risk for the value of corporate bonds, as well as provide a framework for further research in this area.

Asset owners who want to keep global warming below 1.5 degrees Celsius (1.5°C) have a tough row to hoe.

Climate indexes tend to have a lower weighting (relative to parent indexes) allocated to companies in the emission-intensive energy, utilities and materials sectors. Did these indexes underperform in the year to date, given high recent energy prices?

As corporate-bond investors embrace decarbonization as a goal in portfolio construction and management and benchmark selection, the question arises whether decarbonization targets are at odds with other desirable index attributes, such as liquidity.

Can managers take an active approach to systematically managing exposure of a corporate-bond portfolio to climate-transition risk? We investigate two different approaches to decarbonizing credit portfolios.