Updates story
Western Asset Management earlier this month launched a new sustainable bond strategy called ESG Core Plus that seeks to invest in companies that eliminate risk through strong environmental, social and governance criteria.
The strategy will support issuers who offer new ESG-linked bonds in the primary market and has already been involved in recent green and social bond pricings from Citigroup, Bank of America and Royal Bank of Scotland.
"It is similar in many respects to one of our flagship strategies our US Core Plus product," said Bonnie Wongtrakool, global head of ESG investments at Western Asset Management.
"It's drawing from those same teams and going through that same general investment process, but the difference is really this added emphasis on ESG."
The strategy intends to outperform the Bloomberg Barclays US Aggregate US Unhedged Index while targeting 20% of allocations to issuers aligned with the UN Sustainable Development Goals.
ESG bond issuance is down for the year, especially in the US as companies focus on shoring up their liquidity amid a recession.
While ESG bonds are starting to make a come back in a normalizing market, the US approach to ESG in the past year has been more focused on how companies can best improve their overall credentials in the space for higher ESG scores.
In order to target those issuers ESG Core Plus also will have a higher average MSCI ESG score than the benchmark, a 20% lower portfolio carbon footprint than benchmark and will engage with management to push for positive change.
The strategy will also exclude tobacco, coal, civilian firearms, and various weapons.
Some companies right now are just focused on surviving the economic fallout of the pandemic, but Wongtrakool said she is confident ESG trends will continue to see progress through the recession.
"We see a lot of variance in the energy sector with how companies are thinking about green energy," she said.
"A lot, especially the European integrated majors, are reemphasizing their commitment to carbon reduction and that is an encouraging sign that against this volatility they are looking at oil prices and recognize that carbon reduction is trend that is pushing forward."