The Strategy employs a holistic bottom-up climate and credit selection process, utilising integrated assessment models built with research support by the Columbia Center on Sustainable Investment. This ensures a climate impact consistency across all investment layers (i.e. sectors, issuers, and assets) within a comprehensive framework.

Initial screening

The process begins by screening a universe of over 45,000 of the most liquid, traded bonds via our Climate Allocation Framework for companies with the strongest climate credentials. Every issuer is measured relative to its thematic classification, using a rating system which applies 28 different data fields. Each theme applies different quantitative and qualitative thresholds depending on what is important for that sector. Non-green bonds have more stringent screening thresholds compared to their green counterparts, and must all be classified as Sustainable Investments and E-aligned according to Man Group’s internal RI classification.

Use of proceeds / labelled bonds

Next, the team conducts entity (parent issuer) analysis to ensure that those companies are a trustworthy counterparty in the energy transition. To do this, we evaluate a company's climate alignment and transition plans. For investors, these plans provide a roadmap of a company's future direction and demonstrate its seriousness about tackling climate change. It can also serve as a risk management tool, as companies without clear climate transition plans may face regulatory penalties, reputational damage, and the physical risks of climate change. Therefore, solid climate transition plans can make a company a more attractive investment opportunity, offering both the prospect spread compression and progress towards a sustainable future.

Asset-specific accounting

We then drill down into individual bond issues, conducting asset-specific, ring-fenced or project-level carbon accounting depending on the issuer classification and type of bond. Across all five portfolio themes, the main measurement we assess is avoided emissions. Avoided emissions is the sum of reduced emissions (e.g. supply chain or process efficiency) and replaced emissions (e.g. replacing a gas vehicle fleet with an electric vehicle fleet). Together, emission reductions and replacement emissions capture both backward and forward-looking carbon accounting perspectives. To use the emission savings values, we calculate two different metrics: emission savings intensity and carbon impact ratio (‘CIR’).

Credit Process: Rigorous bottom-up analysis is combined with top-down macro views

From here, we move into the credit analysis process. This begins first with the assessment of the entity and its climate transition plans. These need to meet minimum internal thresholds. Then we identify bonds with high CIRs and high avoided emissions intensity relative to the sectors they operate. Based on this initial assessment, the team will conduct deep fundamental analysis on investment candidates and the specific structure of individual bond issues to identify outperformers, manage risks and arrive at the appropriate weighting. Bottom-up analysis is reconciled with top-down macroeconomic views to inform positioning and reflect the team’s outlook on markets.

Portfolio composition

The portfolio is constructed to include green bonds and (60%-100%) and non-Green Bonds with High Avoided Emissions (0%-40%) and high CIRs within our thematic sector framework. Weightings to Developed Markets will stand at between 65-100% with at least 80% in Investment Grade Bonds.