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GAM Sustainable Climate Bond

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ESG Investing Awards 2024

GAM Sustainable Climate Bond is a bottom-up, high-conviction fund allocating to green and sustainability bonds with positive environmental impact, issued by the European financial sector. Proceeds are allocated to eligible projects with measurable impact, in particular renewable energy and green buildings. Such bonds contribute to lowering carbon, while seeking to provide attractive spreads for investors.

We have a high conviction active approach. This means we can deliver on the investment side, but also focus on the real economy impact that we have through the strategies."
Stephanie Maier, Global Head of Sustainable and Impact Investment

Our Edge

Deep expertise in financial bonds

The team's strong track record, wealth of expertise in the European financial sector and access to senior management means it is extremely well placed to exploit the opportunity in European financials. A deep understanding of issuers, the regulatory context and other drivers of the industry provide strong value-add to drive positive impact through investment in financials’ green bonds.

Robust ESG analysis with a green bond framework

An internal green bond assessment framework, setting minimum standards at the issuer, green bond framework and green assets level, builds on the team’s long-integrated ESG approach in the investment process of the fund, which launched in 2021 and is classified as SFDR Article 9.

Impact reporting

As an SFDR Article 9 fund, the fund seeks to generate a positive environmental impact. Annual reporting on impact is produced for investors, including the quantitative positive environmental benefit generated by investing in the fund.

Conservative portfolio

A liquid, diversified portfolio with visibility of income, strong average rating of BBB+ and holding circa 90% of (IG) bonds. The fund is a UCITS daily dealing fund with no use of either leverage or complex derivatives. Derivatives are only used for currency hedging purposes.

Attractive return

The portfolio is designed to generate an income yield well above that of IG bonds. The yield of 0.9% (in EUR terms) is around 3x the yield on EUR IG bonds of 0.3%. This is achieved by investing across the capital structures of European banks and insurers.

INVESTMENT TEAM

The fund is managed by Atlanticomnium S.A., an independent Geneva-based fund management company, which has specialised in credit investing since it was founded in 1976. The firm has managed assets for GAM since 1985. Atlanticomnium has a strong track record, through 35 years of experience investing in the bonds of financials. Moreover, Atlanticomnium has one of the longest track records in European financial bonds, with an established history of analysing issuers, conducting close engagement and building deep relationships with issuers and regulators.

Fund managers, Gregoire Mivelaz, Patrick Smouha and Romain Miginiac have over 35 years’ combined experience within the industry. The primary source of added value is the bottom-up credit selection ability of the managers and their expertise in financials. The managers are supported by an analyst team with in-depth knowledge of issuers’ credit profiles.

We believe that our expertise investing in financials and a robust bottom-up approach to green bond selection are key to you, our investors, in generating a positive environmental impact.
Atlanticomnium S.A.
Gregoire Mivelaz
Fund Manager, Atlanticomnium SA
Patrick Smouha
Fund Manager, Atlanticomnium SA
Romain Miginiac
Fund Manager & Head of Research at Atlanticomnium SA

Philosophy and Process

Investment Philosophy

We believe that the financial sector is playing a key role in the environmental transition and we feel that we have some of the deepest expertise within the sector through our long track record and our history of engagement. Climate change is one of the largest and more pressing risks for the global economy, thus incorporating climate risk as a core part of our investment approach and process ensures robust forward-looking risk management, and by extension, seeks to protect bondholders’ returns. We believe that active management is paramount to ensuring investment in green bonds with strong impact potential and avoiding those without a genuine sustainability purpose.

Process

Our green bond assessment framework is designed to identify green bonds and other ‘impact’ bonds that will deliver meaningful impact. The framework recognizes the ICMA Green Bond Principles1 and builds on an approach consistent with our investment philosophy, which is bottom-up research intensive with engagement as a key pillar.

The framework is split into three layers of analysis – issuer, bond, and green asset level – which are interwoven into the team’s overarching, longstanding process. Each layer is assessed individually, using both proprietary research and data from external third parties. Engagement is a key part of our framework, both to enhance our analysis and to encourage improved standards within each pillar. All assessments are based on a best-efforts basis.

Issuer ESG quality

Overall, we seek to invest in issuers with strong ESG credentials – including a clearly-defined climate and sustainability strategy, a credible and transparent green bond framework and support for the pipeline in green assets. Analysis of issuers’ ESG profiles is performed internally with a proprietary scoring tool, which assesses material ESG issues for each sector.

Green Bond Framework

The quality of the governance and processes related to the green bonds’ use of proceeds are assessed using pre-issuance documentation. Issuers are required to have second-party opinions on ICMA GBP compliance from a recognised assurance entity.

Asset-level Green Impact

The use of proceeds of green bonds is assessed. Bonds eligible for investment after screening at the issuer and green bond framework level provide investors with visibility on the allocation of proceeds and key KPIs of environmental impact.

Positions are selected and sized to achieve income and capital appreciation potential, as well as to mitigate credit risk, interest rate risk and liquidity risk via diversification. Risk control and portfolio monitoring are performed at four levels – credit research and sustainability, portfolio management and risk management (UCITS limits, prospectus limits and internal guidelines), with independent risk monitoring performed by GAM.

1 As at June 2021. ‘Impact bonds’ follow the ICMA Green Bond Principles, Sustainability Bond Guidelines and Sustainability-Linked Bond Principles.
1

Issuer Selection

  • ESG analysis based on an internal scoring model, focusing on climate and environmental aspects
  • Identify issuers with strong credit metrics and corporate governance favorable to bond investors
2

Bond selection

  • Green bond assessment framework to select high quality green bonds
  • Third-party specialised data re-estimates the environmental impact
3

Portfolio construction

  • Diversification across instrument structure, capital structure and sector/subsector
  • Issuers and bonds sized based on an internal sustainability assessment
4

Risk control and portfolio monitoring

  • Monitoring and risk management at four levels: credit research, sustainability, fund management and risk management
  • Strict compliance with regulatory, prospectus and internal limits

Reasons to Invest in financial sector green bonds

VISIBILITY ON USE OF PROCEEDS AND POSITIVE IMPACT

Green bonds offer strong visibility on the use of proceeds, with reporting on the allocated funds. The positive environmental impact of investments is reported, while impact reporting from issuers provides an overview of aggregate KPIs, such as CO2 emissions avoided or renewable capacity installed.

ATTRACTIVE YIELDS

Bonds issued by financials across the capital structure in both senior and subordinated format give the team the ability to capture attractive spreads compared to the average green bond market. Investors can benefit from the strong credit quality of issuers, while capturing the positive impact of underlying projects. The fund offers a strong pick up in spread compared to EUR investment grade rated (IG) bonds.

OPPORTUNITIES IN A GROWING ASSET CLASS

The issuance of green bonds is expected to remain strong, driven by strong commitments from banks to finance the ‘green’ economy. Sustainable financing commitments have accelerated as banks have rolled out net zero targets, aligned by the Paris agreement. Industry groups such as the Net Zero Banking Alliance, regrouping ~USD 30 trillion in banking assets, reflect accelerating momentum from banks to drive an orderly transition.

BANKS ARE DRIVING SUSTAINABLE GROWTH

As the primary source of financing for European corporates, the role of banks in environmental transition is pivotal. Banks are particularly involved in the financing of SMEs (which lack access to capital markets), and therefore offer investors exposure to SMEs. The multi-decade transformation of the sector post-GFC, driven by regulation, has led the financial sector to become extremely resilient. Supporting the economy and impact projects requires strong issuers, and we believe that European banks are rock solid and able to step up to the challenge.

FINANCIALS ARE THE MOST REGULATED MARKET

There is increasing regulatory pressure to drive the greening of the European economy and climate risk has become a key priority for banking regulators. While banks’ own operations carry limited implications for climate risk, the indirect impact through banks’ lending to green projects and corporate green initiatives is significant. Banks are doing more green financing and are also putting pressure on their clients to implement sustainable strategies. Therefore, the impact potential from banks shifting the flow of credit is tremendous.

Key Risks

Liquidity Risk

Some investments can be difficult to sell quickly which may affect the value of the Fund and, in extreme market conditions, its ability to meet redemption requests.

Credit Risk / Debt Securities

Bonds may be subject to significant fluctuations in value. Bonds are subject to credit risk and interest rate risk.

Currency Risk - Non Base Currency Share Class

Non-base currency share classes may or may not be hedged to the base currency of the Fund. Changes in exchange rates will have an impact on the value of shares in the Fund which are not denominated in the base currency. Where hedging strategies are employed, they may not be fully effective.

Capital at Risk

All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

Concentration Risk

Concentration in a limited number of securities and industry sectors may result in more volatility than investing in broadly diversified funds.

Interest Rate Risk

A rise or fall in interest rates causes fluctuations in the value of fixed income securities, which may result in a decline or an increase in the value of such investments.

Resources

CARBONE 4 – SPECIALISED CLIMATE DATA PROVIDER FOR THE FINANCIAL SECTOR

View

GREEN BOND ASSESSMENT FRAMEWORK

View

WHITEPAPER CLIMATE BOND FUND

View

GAM Climate Bond Impact Report 2024

View

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Our Thinking

Fund Information

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Disclaimer: Past performance is not an indicator of future performance and current or future trends. The indications could be based on figures denominated in a currency that may be different from the currency of your residence country and therefore the return may increase or decrease as a result of currency fluctuations. Capital at risk: all financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed. Any reference to a security is not a recommendation to buy or sell that security.

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