"We probably only ever owned 0.1 per cent of our fund in Brazilian bonds, but they still called us when they were issuing, and we had a chance to hear from them, and it's very much about where a country is going, but if we don’t like it, we don’t invest."
Rust adds: "All of the aspects of the E, the S and the G are part of the consideration, because each one is part of the investment case and financial risk.”
Transitioning companies
Andrew Lake, head of fixed income at Mirabaud, says that in order for the transition to be effective, one has to invest in companies that may now be highly carbon intensive, but are seeking to change.
He says: "Microsoft as a software company produces very little carbon, but if we are going to reduce the carbon of the economy as a whole, there is very little point in investing in Microsoft. We need instead to invest in those companies that are moving in the right direction.
"And it is certainly true that there is a cost to doing all of this, to the transition. It is important that this is also recognised by governments and that subsidies are introduced to help to manage the impact, whether that is through subsidies related to higher energy prices faced by households, or another way.”
Constable-Maxwell adds that many large companies already have technical expertise around how to deploy new technologies, while also having the resources to be able to provide clarity on their supply chains and labour practices.
Lewis Aubrey Johnson, head of fixed income products s at Invesco, says: "If you just want a low-carbon fund, that is quite easy to do, you just underweight (that is, have an exposure to a part of the market that is less than the index exposure) the companies that use the most carbon. And there is nothing wrong with that.
"But when we launched our products we wanted to be sure that we were not just a carbon-avoidance fund, we wanted to invest in ways that help to achieve change. And to do that, one has to invest in some of the more carbon-intensive companies that have management teams that understand the need to change, and are issuing bonds to fund that. We do have some exclusions, for example, mainstream oil and gas.”
Jeremy Rogers, who runs the Social Impact investment trust at Schroders, says the challenge with the energy transition is that the cost of renewable energy growth is essentially placed on electricity bills, creating a problem for lower income households.
