Perhaps providing evidence of a belief that social impact investment products are gaining a foothold in the broader financial market, investment management company Calvert Investments has launched a green bond fund that can be utilized by individual investors seeking to diversify a core fixed-income holding with a sustainable investment solution.
The Calvert Green Bond focuses on opportunities related to climate change and other environmental issues primarily through investment in bonds. The fund is accessible to the retail market for an investment as little as $1,000.
Corporate holdings in the fund meet Calvert’s definition of green if they derive at least half of their revenues from clean tech or an environmentally beneficial technology, product or service. Calvert also invests in project bonds that achieve goals such as developing smart growth and transit, energy efficiency, pollution prevention, and green real estate.
With the fund, Calvert is packaging as a mutual fund a strategy the firm has been managing as a separate account for over two years now. Calvert representatives note the firm has an over 30-year history in sustainable investing and say the timing is right for such a product.
“People thought [social impact investing] might have been a flash in the pan, but it has legs,” says Cathy Roy, who co-manages the fund with a team of Calvert fixed income portfolio managers.
The reason interest and availability is growing? Part of it is that people are expressing a growing focus on sustainability, Roy says. The world is becoming aware that there trillions of dollars needed across the globe to address global challenges including climate change and sustainable farming.
Even the Province of Ontario, Canada has been reaching out to U.S. issuers to see how they launched their green bonds as Ontario is looking to issue a bond that will support the development of light rail, she notes.
Indeed, in October social and environmental impact investment firm, Sonen Capital indicated in a report detailing the financial performance of an impact investing portfolio that impact investments can compete with, and at times outperform, traditional asset allocation strategies, while simultaneously pursuing meaningful and measurable social and environmental impact.
The report, titled Evolution of an Impact Portfolio: From Implementation to Results, looked specifically at the KL Felicitas Foundation and its decision to begin a process that would eventually allocate 100 percent of the foundation’s capital to “impact investments,” which it defined as investing with the intent to generate both financial returns and purposeful, measurable, positive social or environmental impact.
Over the seven-year period from 2006-2012, the foundation moved from 2 percent of assets allocated to impact to over 85 percent, while simultaneously achieving index-competitive, risk-adjusted returns.
“There is no give up in terms of performance,” Roy says. Roy contends the perception in the past had been that an investor in this space had to give up yield and returns.
Further, with the solid results, these products are beginning to appeal to those who didn’t even care about “green investing” before this time. “That’s a big sea change,” Roy says.
For Calvert, time will tell about the reception for their green bond fund offering. Until the product’s launch in late October, the firm was in a quiet period, and was unable to market the fund. “Most people want to see a little bit of performance, and how it plays out,” Roy says. “We’re very positive on it, but it might be the beginning of the year before we start to see some real interest and new money coming in.”
Calvert’s Green Bond Fund is also targeted at institutional investors such as foundations, endowments, and family offices seeking strategies that fulfill responsible and sustainable investing mandates and retirement plan sponsors aware of their fiduciary duty to incorporate ESG factors in their financial analysis and satisfying participant demand for sustainable investment options.
The Calvert fund will be more diversified across the growing green bond universe, Roy says.
The Calvert fund launch follows the October 2011 launch of the State Street Global Advisors’ High Quality Green Bond strategy, which invests primarily in green bonds issued by the World Bank and European Investment Bank. Further, this month Bank of America Corp. issued a $500 million bond that will be used to finance renewable energy and energy-efficiency projects and programs.
No doubt, this is all being closely watched by independent international organization World Economic Forum (WEF), which in fall said it would like to see more mainstream use of social impact investment products. The WEF also has noted that in previous years concern over potential low involvement and returns has stopped some investors from being involved in these products.
One Challenge: Measuring Success Of Social Impact Products Beyond Returns
One of the biggest outstanding issues with this type of investing continues to be that while quantifiable measures such as returns and yield are easy to calculate, the overall good these products accomplish can be a little more difficult to estimate.
For example, while it could take 50 to 100 years before anyone can measure impact on the climate from reforestation in the Amazon, efforts such as investments in a wind farm could reveal a much more measurable near-term impact.
At this time, anecdotal stories are primarily used to discuss the potential big-picture impact of these products. True honing of reporting standards for these types of products could be a few years out, Roy says.
