Some Corporate Bond Issuers Really Need to Up ESG Efforts

Due to rising interest rates, corporate bonds and even investment-grade debt are out of favor. However, elevated yields in the asset class could imply there’s value to be had.

Investors considering searching for those bargains along with the perks of environmental, social, and governance (ESG) virtues may want to evaluate the SPDR Bloomberg SASB Corporate Bond ESG Select ETF (RBND).

RBND turns two years old next month and is becoming increasingly relevant because advisors and investors are demanding more fixed income solutions that bring ESG principles into the equation. The exchange traded fund could also catch attention among asset allocators because some industries are lagging in terms of sustainability credentials, and that could impair credit ratings.

“Nine sectors that affect or depend heavily on natural assets—land, air, and water—could face nearly $1.9 trillion in credit risk due to the mismanagement of these resources, warns a new report from Moody’s Investors Service,” reported Lauren Foster for Barron’s.

The Moody’s report noted that if companies in those industries don’t get a handle on their exposure to storms and other climate-related disasters, they could be punished in debt markets.

Those risks underscore the value of an ETF such as RBND. The SPDR ETF tracks the Bloomberg SASB® US Corporate ESG Ex-Controversies Select Index, and part of that benchmark’s objective includes avoiding companies and industries that could be vulnerable to ESG controversies. RBND could be at the right place at the right time for ESG investors seeking fixed income solutions because as Moody’s notes, investors are just starting to make climate and other nature-driven issues part of securities evaluation frameworks.

“Matt Orsagh, senior director of capital markets policy at CFA Institute, says investors have historically done a poor job of valuing natural capital and that needs to change,” according to Barron’s. “In a forthcoming paper, he argues investment professionals must develop frameworks for properly integrating natural capital and biodiversity into the investment process. The risk of continued biodiversity loss is far-reaching, from nature to investment portfolios to the quality of life on the planet.”

RBND holds 460 bonds and largely avoids issues from sectors that could be susceptible to climate-related disasters and risks, including energy and materials. The fund’s option-adjusted duration is 7.07 years, according to issuer data.

For more news, information, and strategy, visit the ESG Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.