Threadneedle UK Social Bond Z Ret Acc (OEIC/Unit Trust)
SRI / Ethical Overview
The Threadneedle UK Social Bond Fund brings social investment into the mainstream with a unique market approach to social investing. The Fund, launched in partnership with Big Issue Invest, aims to build a diversified portfolio of bonds issued by organisations to deliver a clear social outcome, primarily in the UK, as well as respectable financial returns in line with those generated by mainstream UK corporate bond funds.
By investing specifically in bonds that have a clear social outcome we are encouraging the issuance of new bonds thus helping provide a new source of capital to social sector organisations.
SRI Policies (Primary strategy in bold)
- Environmental policy Find investment funds with environmental policies - ie that consider issues such as pollution, climate change, resource management, environmental impact. This will include options from all of the different SRI Styles, including funds where their core strategy is to focus on other areas such as ethical funds. See fund information for fund specific policy details.
- Health & wellbeing policies Find ethical or sustainable investment fund options that have a policy which supports (ie aims to invest in) companies that are viewed as offering positive lifestyle, health or wellbeing related benefits.
- Limits exposure to carbon intensive industries Find environmental, sustainable investment, ethical fund and other options that aim to significantly reduce or limit exposure to carbon intensive industries (ie sectors which are major contributors to climate change). Funds vary - strategies may involve excluding sectors such as coal, oil & gas, mining or airlines - or may indicate a 'best in sector' approach is taken. See fund literature for details.
- Measures positive impacts Find funds that measure the positive effect of their investment decision making on society and/or the environment. (This may involve eg carbon saved or jobs supported.) Managers aim to quantify the benefits they deliver (relative to other strategies or other benchmarks) to ensure they are delivering positive benefiting. This is a new and evolving area. See fund literature for information
- Sustainability policy Find fund options that consider issues relating to the sustainability agenda (e.g. resource management, environmental impact, climate change and/or social issues such as equal opportunities, human rights and adherence to recognised codes). This will include funds from all of the different SRI Styles. See fund information for explanations of the different strategies.
- Ethical policies Find funds with 'traditional' ethical investment policies. These typically focus on avoiding companies that are involved in the armaments industry, tobacco, gambling and/or pornography. Options will include funds where their core strategy or style may be to focus other issues - like sustainability or the environment, not just 'ethical funds'. Strategies vary significantly. Check fund literature for details.
- Social policy Find fund options that consider social issues (e.g. human rights, labour standards, equal opportunities, child labour and adherence to internationally recognised codes such as the UN Global Compact). This will include funds in most of the different SRI Styles as this is considered a core issue. See fund information for detail.
- Governance policy Find fund options that have policies that relate to corporate governance issues such as board structure, executive remuneration, bribery and/or corporate corruption. These funds will typically avoid companies with poor practices.
- Animal welfare policy Find ethical fund options that have policies that require specific animal welfare standards to be adopted by investee companies in order for them to be considered for inclusion within the fund.
- Nuclear exclusion policy Find ethical funds (and other options) that have a published policy that sets out the fund's position on avoiding or limiting exposure to nuclear power. See fund literature for details of their policy.
- Animal testing exclusion policy Find ethical investment options that avoid companies that are involved in testing their products on animals. Ethical fund strategies vary - some exclude all companies that test on animals, others allow companies that test for medical purposes or where required by law. Read fund details for fund specific information.
- Tobacco production avoided Find fund options that exclude manufacturers of tobacco (or related) products. This typically relates to ethical funds however funds from other SRI Styles commonly avoid this area also. Strategies vary and funds may invest in retailers of such products (e.g. supermarkets or hotels.) See fund information for further information.
- Armaments manufacturers avoided Find ethical fund (and other SRI) options that avoid avoids companies that manufacture products intended specifically for military use. Fund strategies vary - particularly with regard to non strategic military products. Read fund literature for specific details.
- Coal, oil &/or gas majors excluded Find sustainable investment and ethical fund options that avoid significant involvement in coal, oil and/or gas producing companies. Funds vary. See individual fund literature to confirm details.
- Climate change / GHG policy Find sustainable investment and ethical fund options that pay significant attention to climate change related issues such as greenhouse gas/carbon emissions. Strategies vary, see fund literature for individual fund information.
- Invests in clean energy/renewables Find ethical, sustainable investment and other environmentally aware fund options that aim to invest in companies in the clean technology and renewable energy sectors. Fund strategies vary. Some funds may have limited exposure to this area, others may have significant exposure. Check fund literature for details.
- Human rights Find funds that consider human rights practices when approving companies for investment. Such funds will require decent standards of human rights to be demonstrated - which typically means adherence to international norms as a minimum standard.
- Positive selection bias Find funds where their main 'ethical approach' is to invest in companies that are considered to be positive/good or useful to people and/or the environment. The fund may also have negative avoidance criteria - see fund details to read more about fund strategies.
- Negative selection bias Find funds where their main 'ethical approach' is to avoid companies by using negative screening criteria. Read fund literature for further information.
- Sustainability themed Find funds where there is a significant emphasis on sustainability issues either as its primary strategy or as a core strategy that compliments other criteria. (This may apply to a number of different SRI Styles). Such funds will consider environmental and social issues when making stock selection decisions. Read fund literature for further information.
- Favours cleaner, greener companies Find funds that aim to nvest in companies with strong environmental policies and practices. This may mean it invests in smaller companies offering market leading environmental services or products and/or larger companies that are working towards the improved management of their negative impacts. Read fund literature for further information.
- Favours companies with strong social policies Find funds that invest in line with positive strategies that relate to 'people' issues - such as having strong human rights, labour standards and equal opportunities practices. Such funds are likely to invest in companies that have market leading standards with regard to employee and supplier practices. Read fund literature for further information.
- ESG/SRI engagement Find funds and fund management companies that actively encourages higher 'environmental, social and governance' and/or 'sustainable and responsible investment' practices amongst investee companies - when positive change is aligned with the best interest of investors. This may apply to a single fund or a group of funds. Read fund literature for further information.
- Integrates ESG factors into all/most fund research Find fund management companies that research environmental, social and governance (ESG) issues when deciding whether or not to invest in a company. This typically applies to all funds, not only those which are promoted as being 'ethical' or 'SRI themed'. This is increasingly often used as a risk management tool.
SRI / Ethical Policy
The core premise for the UK Social Bond Fund is that we believe that:
- There is a significant investment opportunity for bonds to generate both attractive risk-adjusted financial returns and positive social outcomes.
- Bonds with attractive yield, liquidity and social characteristics can deliver a diversified portfolio with daily liquidity.
- Our partnership with Big Issue Invest validates and enhances the social outcome of the portfolio.
The investment policy is to maximise exposure to socially beneficial activities and development, based on assessments produced under the Fund’s Social Assessment Methodology. This methodology uses a social universe derived from the constituents of the Merrill Lynch £ Non-Gilt Index (c.1,050 bonds), together with a select number of non-benchmark bonds. These are weighted and mapped across into the eight key social outcome fields. This forms a social universe of around 350 - 400 securities.
In addition, these bonds also need to have either yield or liquidity or both as shown in the diagram. We refine the pool of potential investments based on the combined analysis of our investment grade credit team (yield and liquidity) and our governance and responsible investment (GRI) team (degree of social impact and intensity). A proportion of the Fund will be in highly liquid but lower yielding instruments, with the remaining proportion in less liquid instruments and charity bonds.
From this universe of potential investments, the portfolio manager uses an innovative Social Assessment Methodology, to evaluate the ‘social intensity’ of qualifying bonds, with each security ranked as high, medium or low social intensity. Investments are taken from this universe and analysed by GRI team. The portfolio manager then takes these social aspects into account when building a diversified and socially-balanced portfolio, which meets the required liquidity and financial returns requirements.
The portfolio manager has ultimate responsibility for portfolio construction. The portfolio will be well-diversified, with a minimum of 80% in domestically-focused bonds. Securities will predominantly be investment grade, with some unrated bonds and smaller issues especially when they have high social value.
Particular attention is paid to managing liquidity, through holding more liquid social investments and cash, for the purposes of servicing the daily liquidity requirements of the portfolio.
The Fund’s Social Advisory Committee plays a key role in monitoring the construction and ongoing management of the portfolio and meets formally each quarter, as well as on an ad hoc basis when appropriate. Its remit includes the application of the Social Assessment Methodology across the portfolio; advising the portfolio manager on the social intensity of existing and potential investments; and challenging, where appropriate, the social analysis and social footprint of the strategy’s portfolio.
Social Assessment Methodology
Big Issue Invest, working with our GRI team, has developed a Social Assessment Methodology that positively screens all bonds with a focus on the degree to which they deliver positive social outcomes across eight areas: affordable housing; education; employment and training; health and social care; financial inclusion; community services; transport and communication infrastructure; utilities and the environment. To assess the overall social intensity of qualifying bonds we use the methodology framework to guide investment decisions from a social perspective. Potential investments are reviewed to assess their overall ‘social intensity’ also noting the demographic characteristics of the issuer.
As a company, we have a long standing history of charitable giving and have our own Foundation. The Foundation, a dedicated entity through which the company provides support for charitable activities, receives a proportion of the profits from this Fund.
Resources, Affiliations & Corporate Strategies
Our main focus is on proprietary internal research where we use the analysis of our highly qualified investment professionals from the Fixed Income team, the Governance and Responsible investment team along with the Equity team to generate an investment advantage. We also receive information from digital media sources (e.g Bloomberg, Reuters, Moody’s etc), major brokers, smaller regional brokerage houses and other sources such as conferences, trade journals and other media e.g. newspapers and magazines.
Simon Bond is the lead portfolio manager and has ultimate responsibility for investment decisions in the Fund. He is a senior portfolio manager in our investment grade credit team which has been managing investment grade bonds since the firm’s formation in 1994. Simon has a long association with social outcome related investing, having started his career analysing Housing Association bonds in the late 1980’s. He is part of the wider fixed income group that comprises 86 experienced fund managers with an average of 18 years’ industry experience.
Our Governance and Responsible Investment team, led by Iain Richards, has an established environmental, social and governance approach that forms a screening process which is integrated into the overall investment approach used to manage the strategy. The Fund employs both negative screens and positive screens. The team has an average of 13 years’ industry experience.
Big Issue Invest acts as Social Advisor to the strategy, via the Social Advisory Committee. The Committee has six members, comprising three representatives from Big Issue Invest, two representatives from Columbia Threadneedle and an independent member. The Committee’s role is to advise, review and challenge the strategy’s investments from a social performance perspective. The Committee meets quarterly and also holds an annual meeting to review the portfolio and strategy’s investment methodology from a strategic perspective.
We are also a founding signatory to the UN backed Principles for Responsible Investment, as well as signatory to the UK Stewardship Code, the Extractive Industries Transparency Initiative and the Carbon Disclosure project. We are an active member of a number of other responsible investment initiatives including (amongst others): the UK Sustainable Investment and Finance Association, the European Social investment Forum, the Global Governance Forum.