Understanding the bond management process through the lens of refinancing cycles is crucial for effective bond oversight, asserts Rory Sandilands from Aegon AM.
The Aegon Global Short Dated Climate Transition Fund, a relatively new investment vehicle set up two and a half years ago, has gained significant attention in the financial world due to its focus on bond stewardship. This focus aligns with the growing trend towards climate transition strategies, as more asset owners and investors seek investment solutions to help them meet their net zero commitments.
The importance of bond stewardship in achieving net zero goals is increasingly recognised. Rory Sandilands, co-manager of the Aegon Global Short Dated Climate Transition Fund, is a strong advocate for this approach. Bondholders, he believes, can engage directly with companies to encourage transition towards net zero pathways, consider how climate risk is reflected in the structure and covenants of bonds, and adopt a collaborative approach involving various participants across the corporate bond ecosystem.
The higher profile of bond stewardship is due to its inherent nature in a forward-looking investment process, such as the climate transition approach. The trend suggests a growing interest in climate transition strategies among asset owners and investors. This is evident in the actions of several pension funds, including Alecta (Sweden) and ABP (Netherlands), which have acquired shares in climate transition funds over the past two years to support sustainable investments that align with net-zero goals and to manage long-term climate risks while seeking financial returns.
The global bond market, which reached $128 trillion in 2023, provides a vast landscape for such investments. Bond funds, following equities, are the second largest category by Assets Under Management (AUM) in the global climate transition universe. Half of the money in the Aegon Global Short Dated Climate Transition Fund comes from local authority pension funds, reflecting the growing demand for such investment solutions.
The Institutional Investors Group on Climate Change (IIGCC) identifies various opportunities for bondholders. By engaging in bond stewardship, they can work towards a more sustainable bond market, promote climate-resilient investment practices, and contribute to the transition towards a net-zero economy.
In conclusion, the Aegon Global Short Dated Climate Transition Fund's emphasis on bond stewardship is a testament to the growing importance of this approach in the climate transition strategy. As more asset owners and investors recognise the relevance of bond stewardship to forward-looking investment processes, we can expect to see continued growth in the adoption of climate transition strategies.
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