• Credit
  • Fixed Income
  • Buy and Maintain Credit

Buy-and-maintain credit: The long road to net zero

Long-term trends like climate change are particularly important for buy-and-maintain investors. How can they integrate climate objectives, such as net zero by 2050, into their portfolios?

The goal of buy-and-maintain credit investing is to provide clients with long-term excess returns over government bonds while remaining within a defined credit risk budget. But over the timespans involved, environmental, social and governance (ESG) risks presented by secular shifts can impact managers’ ability to deliver those returns. Climate change is an example of such a seismic physical, regulatory, and reputational risk and requires foresight and strategic planning.

Buy-and-maintain portfolio managers that can effectively identify and understand such long-term ESG dynamics should be better placed to meet clients’ desired net-zero and investment outcomes. The challenge is ensuring that the corporate issuers of longer-dated debt held in portfolios are aligned to what the future – both societal and environmental – is likely to be. But while managers need to keep their clients’ long-term net-zero target in mind, they also need to define and deliver interim objectives along the way.

In this paper, we will consider the importance of ESG integration and impact; the benefits of forward-looking and ‘point-in-time’ approaches to measure progress; data challenges; and explain why uncertainty about the future trajectory of investee companies should not be an excuse for inaction.

Download ‘The long road to net zero’ to understand:

  • What to think about when defining a climate objective
  • The differences between impact and ESG integration
  • How to measure progress

Key risks

Investment risk

The value of an investment and any income from it can go down as well as up and can fluctuate in response to changes in currency and exchange rates. Investors may not get back the original amount invested.

Credit risk

Bond values are affected by changes in interest rates and the bond issuer's creditworthiness. Bonds that offer the potential for a higher income typically have a greater risk of default.

Derivatives risk

Investments can be made in derivatives, which can be complex and highly volatile. Derivatives may not perform as expected, meaning significant losses may be incurred.

Illiquid securities risk

Some investments could be hard to value or to sell at a desired time, or at a price considered to be fair (especially in large quantities), and as a result their prices can be volatile.

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