Schroders unveils sustainable sovereign bond fund

Exclusive: Product will adopt three pillar approach to assess a country’s sustainable profile

Julien Houdain


Natalie Kenway

Schroders is transitioning its SISF Short Duration Dynamic Bond fund into a sustainable global sovereign product, ESG Clarity can reveal.

The SISF Sustainable Global Sovereign Bond fund will provide investors with exposure to green and sustainability-linked government and government-related bonds, as well as to supranational and agency issuers, particularly multilateral development banks, that the firm said play a vital role in sustainable development.

Aligned with Article 8 criteria, the fund aims to provide income and capital growth in excess of its benchmark over a three-to-five-year period.

Managed by Schroders‘ Julien Houdain (pictured), head of global unconstrained fixed income, and James Ringer, portfolio manager, with Marcus Jennings as macro and sustainability strategist, the team will have a three-pillar approach to look for sovereigns based on the following country criteria:

  • UN Sustainable Development Goals (SDGs) – Countries are evaluated within their income bracket against their SDG scores, overcoming income bias.
  • Net-zero policy – Countries must have a credible net-zero policy in the form of a policy document.
  • Democratic and political freedoms – Only countries classified as ‘Free’ or ‘Partly Free’ by Freedom House are considered.

Jennings commented: “We’ve carefully designed this strategy to ensure that all countries are judged impartially in terms of sustainable progress. Our methodology aims to mitigate the inherent income bias, where sustainable scores are correlated with a country’s wealth often to the detriment of poorer countries. With clear parameters around E, S and G factors, investors can be clear about our definition of a ‘sustainable’ sovereign.”

Houdain added: “We have come up with a solution to some of the key challenges of sustainable sovereign investing. This is particularly important at a time when global government bond markets are looking increasingly appealing – with signs of inflation peaking and central banks nearing the end of their rate hiking cycles. By anchoring our investment universe in the UN SDGs and committing to a forward-looking transparent approach, we hope this will address a gap for investors in sustainable fixed income investing.”

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